Wondering if setting up captive finance companies is right for your company? Today, many equipment manufacturers hold captives to support their customers. This is because they help to finance sales and improve business relationships.
In this article you will find out what captive finance companies are and 5 reasons to choose this solution.
As a first step, we wanted to define what captive finance companies are before developing the reasons.
Captive finance companies are financial companies that are part of a parent company whose main activity is not financing. Moreover, the captive is not always owned by the parent company, it is often co-created with financial partners.
Captives are often owned by equipment manufacturers to finance the customers of these manufacturers. In addition, other companies contribute to their financing.
Captives are very present in the automotive sector. For example, RCI Bank and Services for the Renault group, Ford Moto Credit Company for Ford and Toyota Financial Services for Toyota. In this field, the captive buys products from the parent company and offers them to customers on a leasing or rental basis.
First of all, captive finance companies will enable your customers who do not have sufficient liquidity to finance them. In effect, the captive offers an asset to the company on which it depends and makes it available to your customers. This means that your customer who wants to buy a machine can use it without using up his cash in one go. Moreover, he is not obliged to use a bank. With this solution, your customer can benefit from a staggered, recurring payment so as not to affect his working capital. The financing solutions are thus developed. The payment is clear: it is monthly, bi-monthly or quarterly and then all-inclusive, which gives a vision of the overall price for the use of the equipment. And, he can easily organise his cash flow.
At the end of the rental period, the seller gets the equipment back. He can either extend the lease or buy another one. For example, it may be the case in the car industry to lease a car. In addition, the captive can offer additional services.
The captive allows you to control your activities. Indeed, as you do not subcontract to partners, you gain on your margin. Indeed, with this solution you don’t have to go through a bank, which allows you to develop your business and better retain your customers.
Then, you control better your sales force because you observe it in its totality and not only on the volume. Indeed, you can identify contract redemptions, application fees, referral fees, etc.
You can also harmonise financial processes and commercial practices to make your business more fluid.
Finally, you can clearly determine how to split the margin between the captive and the parent company.
Captives are a relay for your profitability and your business model. You can offer additional services to the parent company. Examples of additional services to offer are: insurance, maintenance…
In this way, you have the opportunity to enhance your products and then develop hardware solutions.
A captive finance company helps you keep control of your equipment.
Management is clear as you control the margin, as there are no subcontractors. You can organise your material flows, modify your strategies and create new solutions. Moreover, it is possible to be always at the cutting edge of technology to offer your customers innovative material. And also respect the environment.
Captive finance companies can help to develop your business relationships.
Indeed, they give the possibility to keep a link with the customer since he gets complementary services and the offer is globalized with the financing.
There are different elements you can put in place for the captive. First, create a global extranet solution for contract management and communication. Then, let the captive be the contact for after-sales solutions. And again, a contract with the name of the captive to keep in touch with your customer.
You will maintain a relationship for the duration of the contract, which is different from a sale without financing. During this time, you will be able to learn about the customer’s various additional needs.
In conclusion, a captive finance company is a solution that can be very interesting for you as a manufacturer. Chetwode can help you set up your captive. We have a lot of experience in this field. We will be happy to assist you.