What Is a Product Financing Agreement?
A product financing agreement is a method of funding the purchase of a product, such as a major capital item, by means of a loan or other payment options such as leasing. The customer does not have to apply for a loan from a bank or use any of its other lines of credit. Instead, the organization selling the product provides the customer with financing, using the services of a specialist provider such as a finance house or leasing company. Offering customers a product financing agreement can often help clinch a deal. By working in partnership with a specialist finance company, organizations can offer customers a range of finance options tailored to their individual budget and cash flow requirements.
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Value
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For many customers, the decision on how to purchase products is as critical as the decision regarding what is required. According to Cisco Capital, product financing agreements enable customers to benefit from the use of equipment, not the ownership of it. It gives them the flexibility to manage budgets with predictable payment streams.
Benefits
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Product financing has become an important part of a company's offer. Customers recognize that financing purchases can bring forward business benefits while preserving capital to grow other areas of their business. Financing provides essential equipment for predictable payments over an agreed term, protecting capital and improving cash flow. That means customers can put equipment to productive use immediately, reducing costs, improving competitive performance, increasing efficiency and delivering other business benefits that can have a direct impact on their bottom line. That makes product financing agreements attractive to customers.
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Upgrades
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Constant technological developments mean companies may find existing equipment becoming obsolete. If customers lease equipment, rather than purchase it outright, they can benefit from product upgrade options during the term of the agreement, without further capital investment, according to Balboa Capital Corporation.
Total Costs
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The true cost of equipment purchase goes beyond the cost of the hardware. It includes the cost of installation, training, maintenance and financing -- the total cost of operations (TCO). Suppliers can structure a product finance agreement to include all the elements that contribute to TCO in a single predictable payment.
Finance Partner
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If organizations want to offer customers finance agreements, it's important to choose the right finance partner. The finance partner should have a good working knowledge of the target market sector and the potential benefits of the product offer so it can tailor financial advice in a relevant way. According to Block Imaging International, the best financial partners are willing to embrace a comprehensive program to serve customers and bring additional value to the relationship.
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References
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