Rising to the Challenge: Vendor Finance Adapts to an Ever-Evolving Market
by Monitor Staff May/June 2022
The vendor finance world has been shaken up by many challenges over the last couple years, including supply chain shortages, inflation, the COVID-19 pandemic, a continually evolving market and increasing interest rates. Monitor spoke with vendor finance leaders to get some perspective on these unprecedented fluctuations.
Kelly Furia, Head of Global Marketing, DLL
Uncertainty has been the only constant over the last two years. During this time, the vendor finance world has been shaken up by many challenges in the economy, like supply chain shortages, inflation, the COVID-19 pandemic, a continually evolving market and increasing interest rates. This has forced vendor finance providers to adapt and change the way they interact with partners. To get a handle on the vendor finance perspective, Kelly Furia of DLL Group, Dave O’Neill of Wells Fargo Vendor Financial Services, Mike Rooney of Verdant Commercial Capital and Cameron Watten of Amur Equipment Finance, shared their thoughts about the ongoing evolution of the market.
How have inflation, supply chain challenges and interest rate uncertainty impacted your team and your vendor partners in 2022?
Kelly Furia: Inflation is certainly influencing customer buying behavior across industries,
but it’s still too early to tell how significant the impact is on many of our vendor partners’ sales cycles. Supply chain challenges, on the other hand, continue to have a significant impact on all of the industries we serve, and we expect that to continue through the balance of the year. We are monitoring this trend closely with our partners and proactively seeking opportunities to support them in managing the uncertainty.
Dave O’Neill: It’s been a challenging time to say the least. We expect supply chain constraints will continue impacting manufacturing input costs and production for longer than originally forecasted. Given the strong demand in construction and material handling, combined with a decline in new equipment production, manufacturers can pass on some of the supply chain cost increases to customers. It’s likely that we’re getting to a point of slowed consumer demand given the inflationary pressures, and this could benefit manufacturers as they work through some of their post-pandemic backlog. Rising interest rates are a challenge; however, we have a tenured team that has experienced several interest rate cycles and they know the drill. We work closely with our program partners to
develop plans that minimize the impact.
Mike Rooney: In the last two years, interest rates were at historically low levels. Rates needed to rise, but the speed at which they are rising is causing problems. A 200 bps swing in swap rates over the past six months is very hard to manage and very difficult to communicate to partners and customers. We are managing this closely and doing what’s right for them. Business remains very good, and we’re significantly above our plans for 2022. Inflation is an issue we haven’t seen in many years, and most of us are dusting off strategies we haven’t used in a while. We see vendor partners passing on multiple double-digit price increases to their customers, and like all employers, we are increasing salaries more than in the past to keep our high-quality teams intact.
Cameron Watten: While our vendors have continued to report strong sales, market volatility is certainly a hot topic of conversation for them and uncertainty over supply chains is a preoccupation. It is hard to place an end-date to a situation that from their perspective is quite hard to understand, and when there are empty slots to fill, the debate on the news amongst economists over global supply chains suddenly becomes very real.
Our vendors tend to focus on hard assets that have been subject to significant supply chain disruption, and I know many of them are back-ordered not just for 2022, but in certain cases, they are anticipating inventory constraints into 2023.
Many of our vendors have been kept busy by the strength of the regional economy. We have been able to deepen certain relationships to the extent that our business volume is well ahead of 2021 year over year despite the headwinds. This bodes well for when inventory is more freely available.
Has the process of creating and maintaining vendor relationships permanently changed because of the COVID-19 pandemic? If so, how?
Furia: I believe the COVID-19 pandemic has permanently changed the nature of creating and maintaining all relationships, not just those with vendors. During the pandemic, we all came to rely on digital-first businesses and service providers for everything from groceries to doctor’s visits to homeschooling our children. As a result, our expectations as consumers have heightened, and we expect the same level of customer experience in our professional lives as we do in our personal lives.
At DLL, we are no longer talking about business-to-business or business-to-consumer — everything has become about creating human-to-human interactions. This mindset is driving how we (re)think about our customer journeys and the value we aim to deliver throughout their experience with DLL. It’s an exciting opportunity for us to work even more closely with our vendor partners to determine how we can best serve their end-customers in a digital-first world.
O’Neill: Whenever there’s a new shock to the financial system, we think the approach remains the same. It’s easy to be a good partner when the economy and environment is stable, but it’s these situations that really present an opportunity to earn our partners’ trust.
We believe the strength of our balance sheet, our system integration and, most importantly, our people are an unbeatable combination in a volatile environment. The pandemic introduced tools that helped maintain connection with our program partners and are still valuable connection points, but it’s difficult to replicate the benefits of face-to-face interaction. Our teams have been out in the marketplace for a few months now and it’s been great to re-engage with clients.
Rooney: COVID-19 is horrible, but from a business standpoint, it made us rethink many past assumptions on how to work and support our partners. Early on, video conferencing was clunky, but now most folks are comfortable with it, have the appropriate bandwidth in the home office and know how to share documents. Strangely, talking to senior contacts at a partner became easier with video conferencing because they were working from home too and had more free time to talk. COVID also contributed to the accelerated acceptance of e-docs. Partners that tried e-docs are never going back to paper, which makes doing business easier. Meeting in person and socializing is still the best way to develop long-term relationships, and our team is back out traveling.
Watten: In my opinion, if you have deep rooted relationships that are not solely transactional, they will stand the test of time. Overall, Amur has a phenomenal track record of navigating through the ebbs and flows with our vendor network for more than 25 years. Personally, I made it a point to stay in constant contact with customers and vendor partners throughout the pandemic. I wasn’t going to allow remote work or Zoom calls to hold me and my customers back from growing, and it didn’t. In some ways, it made doing business easier and more efficient since there wasn’t any lost time due to such things like travel.
I am, however, a firm believer in face-to-face contact when developing new business and relationships. While the pandemic did provide new avenues of prospecting that I see remaining, it has not closed more traditional, in-person options. I view the changes as yet another tool in my arsenal to build and maintain positive relationships.
What is your outlook for the vendor finance market for the year ahead? What are the greatest opportunities, challenges and concerns that you anticipate?
Furia: Digital, digital, digital — it’s all about digital. That said, digital is merely a channel through which vendor finance providers will continue to serve and accelerate the growth of their vendor partners. What is most exciting for me about the year ahead is the opportunity to deepen our vendor relationships, collectively engage our end-customers for feedback and work together to co-create the future of vendor finance in a post-COVID environment.
O’Neill: It’s difficult to predict the future given the current global situation; however, we anticipate steady improvements in the supply chain which will help manufacturers work through their backlog. We expect to see demand shift away from construction and into segments that will benefit from return to office.
Looking at the current credit environment, delinquencies are low and losses continue to run much better than forecasted. However, government support is ending and companies in the U.S. may have added significant debt to their balance sheets in the past 24 months. One concern is what will the refinance markets look like for weaker credits in a rising interest rate environment with reduced liquidity? We anticipate a slow unwinding of corporate debt, but that may be wishful thinking.
Rooney: The vendor finance market is largely a replacement market. Essential-use equipment wears out or becomes obsolete regardless of how strong the economy is. We expect this replacement cycle to remain strong, and with new technologies and innovations by our vendor partners, 2022 should be a very good year.
It’s impossible not to be concerned about the crisis in Ukraine and the fear that the conflict could expand. If that happens, all plans for 2022 will be obsolete.
Watten: The last couple of years have truly been interesting, with many businesses developing unique ideas to accommodate the challenges. For vendor financiers, I anticipate the pandemic will create a varied mix of end-user expectations of how they apply for finance and work with funders in servicing their contracts. This will, in turn, elevate vendor expectations of their funding partners.
From Amur’s perspective, we see this as a challenge but also an opportunity that plays to our strengths. We recognize that customers want to do business on their own terms, whether this is through a seamless technology enabled process or a hand-written application form and the phone. Our service objective of meeting the customer where they are at and of aligning our process with their preference, not our operational convenience, addresses this need.
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