GE Capital Solutions: Stay Up in a Downturn - Roger Bryan
For many equipment manufacturers that sell through independent dealer networks, liquidity and cashflow is a concern because they take on the burden of financing the networks themselves. However, GE Capital Solutions' Roger Bryan says that inventory finance can mitigate that risk and, in a downturn, also release liquidity.
A common dilemma for manufacturers is that, while they want dealers to have a good selection of stock, they also want their cash as quickly as possible. From the dealer’s perspective, however, the ideal solution is to have a wide stock selection on display, yet be able to defer payment to the manufacturer for as long as possible.
In this situation of conflicting interests the manufacturer is often made to offer credit to the dealer. This can lead to problems, not least because it is a capitalintensive practice and can be risky. The agreements are also not necessarily on the most advantageous commercial terms and there can be potential problems in the manufacturer-dealer relationship. In addition, financing is not normally a core competence for manufacturers, which is why using a specialist inventory finance provider makes sense.
Moreover, especially in a financial downturn, manufacturers are well advised to turn to a third party to take on these risks and, at the same time, free up liquidity in the market.
‘We provide inventory finance,’ says Roger Bryan, industry leader for industrial products and construction at GE Capital Solutions' Commercial Distribution Finance division (CDF). ‘We step into the middle to provide the funding to carry the stock. We finance stock and equipment from the time it leaves the factory until it is sold by a dealer in the manufacturer's distribution channel. We enable the manufacturer to obtain payment for shipped goods, reduce its risk, and at the same time enable the dealers to hold more stock.’
Bryan explains that, at the same time as obtaining finance, the manufacturer is outsourcing the risk and compliance burden, a major factor for many businesses.
‘We individually underwrite dealers, and take the liability or risk of carrying the debt for them,’ says Bryan. ‘Leveraging its AAA credit rating, GE guarantees payment to manufacturers according to agreed terms. Manufacturers do not need to rely on dealers with varying degrees of financial strength, dotted around Europe.’
In tough trading conditions, CDF also ensures sufficient liquidity in the manufacturer-dealer relationship to avoid manufacturers carrying too much stock.
In a slow-down, manufacturers can continue making equipment that has not been pre-sold. Dealers know that getting hold of stock is not a problem, and so the manufacturer can be left with large amounts of expensive inventory. CDF can change the dynamic of that relationship, encouraging dealers to hold more stock, because there is less pressure to pay within short term time constraints.
Additionally, if manufacturers are carrying out the financing, they will probably be hedging the risk through credit insurance, at a time when insurers are tightening terms, reducing the availability and ease of obtaining that insurance.
There are other advantages of using CDF. GE Capital Solutions captures the asset details for every asset it finances, and that data can prove very useful for manufacturers.
‘Our systems allow manufacturers and dealers to have visibility of their own portfolio at any given time. So they can see the stock,’ says Bryan. ‘With one client, for example, the shared data allowed it to identify that a certain product model was selling better in one territory than another, which helped them shift production, and also run appropriate promotions where stock was sticking.’
The introduction of an inventory finance facility can also help to improve relationships between manufacturers and their dealer networks. ‘We take away an emotive piece of the relationship,’ says Bryan. ‘If you are chasing someone for money, it is hard to maintain a positive relationship. We have seen situations where a manufacturer’s territory manager is trying to grow sales with his dealer base while chasing up payment at the same time. That’s a very difficult balance to strike.’
Bryan attributes a large part of GE Capital Solutions’ success with CDF to the time and effort taken to understand the individual needs of clients and their markets.
‘We appreciate the way each of these markets work,’ says Bryan. ‘This is not just about money; it is about relationships and service provision. It is also about trust. We are handling a company’s route to market and that places a lot of responsibility upon us. Being able to deliver that service element is one of the principal reasons that we have grown our business so strongly.’