Water Quality Products recently asked Andrea Swiney, marketing manager for Aqua Finance, Inc., to discuss how financial programs provide dealers flexibility with their customers and help add to the bottom line.
WQP: What financing programs and services are available to water treatment dealers today?
Andrea Swiney: Water dealers have more financing options to choose from than ever before. Installment financing programs allow customers to make a fixed payment over a set number of months at a fixed interest rate, much like a typical car loan. Revolving loans offer customers a line of credit at the dealership that can be used for future purchases. Credit card programs for water dealers are a third option.
Each type of program has its advantages and disadvantages; however, each of those programs typically features promotional options that can help drive sales. Same-as-cash specials, deferred payment plans and reduced interest rate programs are common examples. These “payment-free” or “interest-free” options can be very attractive to customers.
WQP: What benefits do these programs provide to dealers?
Swiney: Dealers offering financing can put themselves in control of the financial end of the sale. Telling a customer at the start of the sales presentation, “Don’t worry about the price. Convenient payment options are available.” eases the financial fear and allows the customer to focus on the product benefits rather than the cost.
Dealers can use promotional programs to attract new leads. Advertising “90 Days Same-as-Cash” or “Six Months No Payments” can get buyers to pick up the phone. Promotions can also be used to close tough deals. Buyers who want to “think about it” or “shop their bank” or “wait for their tax refund” may be spurred to close on the spot if given an interest-free promotion.
With financing, dealers can also increase their average sales price. Estimates say customers buying on credit will spend anywhere from 40 to 100% more than those paying cash. This allows dealers to sell customers higher-end, better-performing products, which not only leads to greater profits, but also increases customer satisfaction with the equipment.
WQP: For dealers interested in offering financing to their customers, what possible costs can they expect?
Swiney: The two most common costs a dealer may pay when offering financing are promotional program costs and risk-based costs. Each promotional program a dealer offers has a cost associated with it. Longer interest-free or payment-free periods mean higher costs for dealers. For example, a six-month no-interest plan may cost a dealer 4% of the sale amount, whereas a 90-day plan may only cost 1% of the sale amount. On a $3,000 sale, a program with a 1% fee would cost the dealer $30.
Risk-based costs may be faced when customers have poor credit. Some lenders simply approve or deny customers based on “top-tier” credit qualifications. However, although the denied customers do not have perfect credit, they may still be considered acceptable risks to other lenders. These lenders make a “bid” on the contract based on the customer’s credit history. For example, a lender who bids 80% on a $3,000 sale is offering to pay the dealer $2,400 for that contract. The lender then bills the customer $3,000 and tries to collect the full amount.
These risk-based costs must be absorbed by the dealer and cannot be collected from the customer. Each dealer must know how much cost can be absorbed on these deals, but in most cases, once the time and effort have been put into making the sale, dealers find making some profit is better than making nothing at all.
Dealers who properly price their product lines can make greater profits on increased sales even with the costs associated with financing programs.