Speaking of Financing…

Edition: September 2001 - Vol 9 Number 09
Article#: 1055
Author: Mark Thill

Group Financial Services (www.finservices.com) is a 25-year-old financial services company based in Hilton Head, SC. It acts as the financial services division of National Distribution and Contracting (NDC), Nashville, TN, which includes ABCO Dealers, CIDA Dealers, Starline Dealers and the American Dental Cooperative. When distributor reps from any of these buying groups talk to their customers about financing equipment, they're talking about the Group Financial Services program.

Director of Sales Greg Einhorn says the company strives to be a complete financial resource for the health care professional. Products offered include the Group Preferred™ line of credit, equipment financing and leasing, new practice financing, receivables financing, working capital and consolidation loans, practice acquisition financing, real estate and construction loans.

Recently Repertoire spoke with Einhorn about financing as a sales tool.

Repertoire: Should reps delay discussions with customers about financing until after the sale is made, or should such discussions be an integral part of the sale?

Einhorn: They should be an integral part of the sales process. How can a rep sell a piece of equipment without incorporating the method of payment, some way to make the acquisition affordable to the customer? Financing provides an easy, competitive way to do that. We train our reps that there are three phases of an equipment sale where financing information – or the economics of the sale -- can be brought up to the customer: pre-sale preparation, point of sale, and post-sale.

Describe pre-sale preparation.

Pre-sale preparation involves pre-qualifying the customer and opening up a line of credit. Because most are MDs or [dentists], we can usually extend a line of credit with just their name, address and social security number.

We encourage our reps to extend lines of credit to their customers even if there is no equipment transaction at hand. Home Depot, Sears and other stores have been successfully driving product sales by offering large, private-label lines of credit to their customer base.

This is an easy way to begin the conversation about financing options with your customer. They're just doing a pre-approval. There's no cost associated with it, nor will it negatively affect the customer's credit. But when you get to the point of pricing a piece of equipment, the customer will know he or she has a dedicated line of credit. This is a very strong way to start. It's much easier to ask for the close when your customer has a $200,000 line of credit with your company.

What about Phase 2 – the point of sale?

We train our reps to be prepared at the close with a commitment form of some sort, or even the lease document. He or she should be able to give the customer some real monthly payment options based on the terms of the pre-approval, so they can say, ''Doctor, this purchase will cost you $220 a month on a five-year lease,'' or whatever the case may be.

We know it's unrealistic to think that the rep will have all the documents and pre-approvals lined up at the point of sale. It just doesn't always happen that way. That's why we encourage reps to master how to ballpark payments.

We train our reps to know that every $1,000 on a five-year lease amounts to about $20 a month payment. It's critical that the rep be able to say to his or her customer, ''That $10,000 piece of equipment will cost you about $200 a month in payments.''

Many doctors don't understand that they are running a business. That's our challenge. That's why we think financing is an integral part of the sale. It's a sales tool that will help the rep sell more equipment and drive more sales, because it breaks a $10,000 transaction into a manageable monthly expense.

Can you describe Phase 3 – after the close?

It's never too late to talk about financing. If, at the close of the sale, the customer says he or she will pay cash or go to the local bank, the rep can never jeopardize a sale by promoting his company's leasing program. Even if the doctor has three other financing options, what does it hurt to suggest that he or she shop for another competitive source? If the rep can bring to the customer a competitive source that doesn't tie up the costumer's local bank line or disrupt his or her cash flow, the rep has offered a value-added service.

Why don't more sales reps incorporate financing into their sales presentations? Do they think it's too difficult?

It's not too difficult, it's just that they're overloaded with information. With the thousands of products a medical or dental distributor rep must be comfortable with, it's difficult to add financing to the mix. On the other hand, financing isn't rocket science. A basic understanding of financing in a sale is within the grasp of any sales rep.

We try to make a salesperson's life simple by allowing him to simply turn a lead over to us to run down. But this isn't always to the benefit of the sales rep. Knowledge is power. We try to make financing accessible to the rep in order to make him or her a better salesperson and increase sales. We offer a software program for laptops called Companion, which calculates payment options, return-on-investment scenarios, tax implications and after-tax equipment costs.

You're implying that a working knowledge of financing makes a rep a better salesperson. Is that true?

Absolutely. To be comfortable with financing, money, taxes and numbers in general makes the rep more valuable to the customer and lets him or her provide some consultation about the customer's business. And that's what a medical practice is – a business. If the rep can provide that value and understand how the customer can best acquire equipment and manage cash flow, he or she becomes more valuable to the customer.

When should a doctor consider financing equipment rather than buying it outright?

Every single time. You have to take a broad view of leasing and financing. Virtually every type of company leases – from the blue-chip corporation to the corner grocery store to the medical or dental practice. Forget the stereotype that the only businesses that lease equipment are those that can't afford to pay cash. Businesses lease because it makes economic sense for them to do so. IBM leases because it makes good economic sense to do so, not because they can't afford to pay cash for their equipment.

There's an issue of ownership too. Medical and dental practices often want to own their equipment outright; they don't want any debt. People bring their desire not to have personal debt into the commercial world. But investing in your practice, leveraging yourself, borrowing money to invest and grow your business is not the same kind of debt as buying your second luxury car or recreational boat. This is one of the major challenges we face – educating salespeople and doctors that it's OK to leverage themselves and their businesses in order to grow the business.

How would a rep explain the financial advantages of leasing or financing equipment?

Financing makes certain purchases that seem cost-prohibitive possible. I know that sounds basic, but it's not.

Doctors, dentists, labs and clinics have significant overhead, given salaries, supplies and rent. They run pretty complicated businesses. Financing allows them to acquire the things they need without disrupting their delicate cash flow. If they don't have a method of acquiring equipment, they won't be able to maintain their business or grow it.

And because of financing, the practice's capital equipment pays for itself through use. Rather than spending $10,000 for a piece of equipment, the practice makes low monthly payments. You have positive cash flow on the investment from Day 1, as long as you can generate additional revenue from its use.

Explain the difference between a lease and an installment loan.

Our company offers a conditional sales contract, where title is immediately passed to the purchaser. The purchaser owns the equipment, can capitalize it as an asset, and makes installment payments to the finance company.

Most leases, on the other hand, are structured with purchase options. In other words, at the end of the lease period, the customer can send a check for the residual value, and the title is passed to him or her. Or he can say, ''I don't want the equipment,'' in which case the finance company takes it back.

Which is more common – leasing or installment loans?

Leasing, primarily because it affords the lowest possible payments.


How has financing changed over the past 10 years?
Customers have gotten smarter about financing, primarily because more information is available to them. Financing has become extremely competitive, especially in the health care market. Health care is a good industry, because the customers are usually good with regard to credit and payment history.

Because there exist any number of sources a doctor can access for funds, finance companies like ours have strived to create value around what is a commodity. We have tried to become more consultative, and to better train sales reps to get more involved in financing.