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Wholesale Stock Finance – Systems for automation and risk reduction

Published in LeasingLife - July 2003

Stock Finance (wholesale finance) has traditionally been viewed by financiers as a loss-leader, offered merely as a means to win or retain profitable retail finance paper. As such, obtaining budgets for staff and systems to support the offering has been an historic obstacle to the running of an efficient wholesale operation. The resulting need to provide a facility typically leads to a manually intensive and hence volume limiting, ‘spreadsheet style’ solution. Clearly, this is a self-perpetuating situation.

However, it has been proven that stock funding can indeed return a lucrative profit to the funder whilst supporting the cash flow needs of the dealer/retailer and thereby gaining their loyalty when the time comes for writing the retail paper. Large dealer groups and manufacturers are in a strong position to demand stock funding as part of their deal with their finance partner and stocking is often a ‘must-have’ in the financier’s product portfolio.

Without sufficient automation, stock finance will almost certainly run at a loss as the overhead can be considerable. An efficient specialist stock finance administration system can provide an efficient, low-risk, cost effective solution to portfolio management. It makes it possible to move from the risky dealer loan to asset based funding of each identifiable item. The financial support of higher risk vendors can be minimised considerably by the identification of the assets against which the loan is made. This is inherent in retail finance but is often overlooked in stock funding. From the barely moveable print press to most portable electronic equipment the asset that is funded may be identifiable and therefore redeemable.

High risk dealers are a matter for credit control and funding them is a known risk in the risk and reward scenario of lending. The combination of asset based stock finance and real time system reporting to support the monitoring of activity reduces the risk considerably.

Checks for clean title against the finance registers and full use of interfaces to manufacturer systems for product description and valuation, upload and download between the stock finance system and vendor systems; retail finance systems; general ledger systems etc combine to minimise risk of fraud. With a clear history of the funding of the asset and automated appropriation at the end of the funded period, it is easy for the vendor to manage his stock and for the funder to be alert to any vendor activity anomalies that could cause concern.

There is therefore, undoubtedly a necessity for financiers to offer a range of Wholesale products to a relatively mature UK market, supported by a very functional, specialist system. Experience has shown that, with the primary driver being cost reduction, the financier’s dilemma is transferred to the system provider, which is challenged with delivering a fully functional system that matches the financier’s budgetary constraints. Under this scenario the only means to overcome the financier’s primary barrier to entry is to deliver a solution with minimal upfront costs along with a ‘pay as you go’ support and maintenance agreement that reflects the volume of business processed. Systems provided on an Application Service Provision (ASP) or Bureau basis allow exactly this with costs deferred over an agreed contract term in order to match financier revenue.

Wholesale system functionality is paramount to supporting an evolving, competitive business area. Web access provides a cost-effective portal enabling vendors, field staff and stock auditor access to real-time Wholesale data. Highly parameterised funding terms are paramount to the flexible support of multiple asset types with differing seasonal peaks all within the same portfolio. There is no reason why agricultural equipment cannot be funded along with construction equipment, printer presses, consumables and ‘brown and white’ goods. In the widest sense an asset could simply be an invoice where the assets making up the invoice are not tracked individually and where repayment profiles are agreed to follow the rate of retail sales.

The niche Wholesale Finance market, like all others, is an aggressively competitive business affected by the economic cycle. Effective automation and streamlining of business processes via a specialised Wholesale System can mitigate risk, reduce overheads and thus optimise profitability. Following recent consolidation of the larger financiers the opportunities for smaller, ambitious start-up organisations has never been better.

Tony Allen Senior Business Manager APAK Group plc Published in Leasing Life - July 2003 - http://www.leasinglife.co.uk