Many firms benefit significantly from either setting up on their own or partnering with a third part to set up a customer financing program for their products. Key benefits are increased sales, cash flow, customer loyalty, etc.
But are there also some risks for the company to be aware of also – company secretary hong kong Of course there are and let’s look at some of those risks.
We would also point out that these risks are in fact the same ones taken on by independent leasing firms also.
Foremost from a risk perspective is that fact the customer financing program will be viewed by the customers as the one and same as your company. Therefore customer service and financing ability are in fact now part of your firm’s reputation.
Companies may also find that the borrowing costs to set up a program are in fact higher than their normal business operating costs. Naturally the method in which the finance division is set up also affects the debt levels of your company. No business wants to fail because it took on higher debt in an effort to in fact help their customers!
On a long term basis company lenders might view your firms foray into customer financing as an additional risk factor, which they might try to compensate on by imposing restrictions such as additional covenants, requests for more equity into the firm, etc. The bottom line is simply that setting up a customer financing scenario may in fact affect your own firm’s ability to borrow.
If your firm is larger then analysts and firms looking at your firm might in fact be raising issues and perceptions around which business you are actually in, i.e. your products, or the financing of those products. Business owners and financial managers will always want to ensure that ultimately they are sticking to their core business model and philosophies. If your firm becomes too enamored by financing you possibly run the risk of total business failure. There are numerous cases in financial history where firms collapsed because of the shenanigans of the finance division.
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