Equipment manufacturers, recovering from poor demand during the recession, have made it a top priority to improve the efficiency of their financing operations, better manage their business portfolios and gain greater control of their customer relationships.

This desire has fueled significant changes to the structure of a growing number of vendor finance programs over the past several years, especially among equipment manufacturers that engage multiple funders to support their customers. (Most do.)

Working with more than one funding partner to maximize customer financing options has always been a sound strategy. It does have its drawbacks, however. Administration of the various portfolios held by multiple funding partners is out of the hands of a vendor, unless there is a central source to compile data, manage customer relationships, address asset management matters and other related functions. Moreover, billing and collection practices are different from one funding partner to the next. This often results in inconsistent performance reporting and can lead to headaches for equipment manufacturers who rely heavily on accurate, timely intelligence. Using multiple funders also can hinder a manufacturer’s ability to provide effective customer service, or at least make the process more complex.

To address these challenges, a number of manufacturers are turning to third-party service providers to handle the administration of their customer financing programs. Doing so provides consistent data to the vendor, streamlines the reporting process, controls the disposition of financed assets and helps vendors make the right decisions to better manage their customers.

The use of third-party service providers is especially important in regard to customer service. Manufacturers that work with Bank of the West’s Managed Services Group, for example, know their clients have but one point of contact for customer questions and issues. In the past, they had to try and work with multiple funders, each with its own way of handling invoices, equipment returns and other processes.

NetApp, a Fortune 100 company headquartered in Sunnyvale, CA, provides storage hardware and software to organizations around the world. Its captive finance company, NetApp Financial Solutions, uses multiple funders to service its diverse base of clients. It has partnered with Ecologic Leasing Services, located outside of Washington D.C., as its third-party service provider to manage some of its administration requirements.

Ecologic Leasing Services CEO Michael Keeler says he has seen the trend toward companies like his effectively administering vendor programs with multiple funders accelerate in recent years, prompting the “death of monopolies” or the use of single funding sources by vendors.

David Pohlman, executive vice president and COO of the Portfolio Services Group at GreatAmerica Leasing Corporation, in Cedar Rapids, IA, concurred. He added that larger vendors are working with GreatAmerica and other third-party service providers because they can step in quickly and manage lease portfolios without any significant investment.

In addition, a third-party service provider can play a key role in helping a manufacturer protect its customer base. Case in point, a customer of a particular vendor may have finance agreements with multiple funders; this is typical with large customers of the major information technology vendors. Without someone closely managing the portfolio information from each funder, the door is open for a competitor to swoop in and convince a lessee that it has a better deal for them, including an offer to take back the equipment currently in place. The customer works with a funder to complete the transaction, but the vendor may not find out until it is too late.

The third-party servicing company only works for the vendor and provides a single point of contact for all its customers. It represents the vendor’s interests and would immediately notify someone regarding the competitor’s move — in plenty of time to respond.

Another key benefit of such an arrangement is the ability to better maintain control of equipment. If, for example, a competitor replaces a significant amount of the vendor’s equipment, then floods the market with it, this could conceivably hurt the vendor’s ability to sell new equipment. A third-party service provider can help prevent such competitive moves.

It should be noted that not everyone in the vendor finance space utilizes multiple funders. Bill Verhelle, CEO of First American Equipment Finance, for example, said a Fortune 500 client of his firm places a lot of value in the fact that First American is its only financing partner. He added that after the funding crunch of the recession, some manufacturers want to build “old-fashioned partnerships” with funders that they can trust.

However a vendor finance program is structured, manufacturers are increasingly recognizing the importance of leveraging the technology capabilities of their funding partners to their advantage. State-of-the-art information systems can provide the speed, consistency and quality data needed to facilitate smart decisions and business success. The stronger the relationship with a single funding source, the more comprehensive and actionable these insights become.

New Jersey-based EverBank Commercial Finance is an eight-year-old company that specializes in vendor financing. When negotiating with manufacturers, president Jim McGrane knows EverBank typically chooses to compete on service, solutions and consistency, fueled in large part by advanced technology as a “lever” to separate EverBank from the pack. The robust capabilities of EverBank’s internal systems provide wide-ranging information inherent in optimizing a vendor’s portfolio of business.

The possibilities of cloud computing also are grabbing the attention of vendors and funders alike, especially in the technology sector. The idea of financing the “use” of hardware and software housed in a remote location is intriguing to businesses wrestling with tighter capital budgets. The challenge is to find a way to structure such a financing product that makes sense for banks and other funders. NetApp, Oracle and other hardware providers are developing such pay-as-you-go term contracts.

Perhaps the greatest difference in vendor finance programs in recent years, however, focuses on the evolving mindset of manufacturers. Rather than considering financing as just a tool to close sales, they now recognize the strategic importance of providing such financing options to increase market penetration and maintain control of their customer base. In its simplest terms, customers are savvier than ever and expect to be presented with financing options, and vendors are much more cognizant about the importance of providing financing to them.

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Paul W. Frechette, managing director of The Alta Group’s vendor and captive finance practice, has worked in the equipment leasing and commercial finance industries for more than three decades. He has held management positions at EverBank Commercial Finance, Tygris Commercial Finance, Sun MicroSystems Global Financial Services, Key Equipment Finance and Heller Financial. He can be reached at [email protected] or 707-395-0634.