Swiss-funder ADF Introduces Alternative Financing Solutions to Floor Planning in the US Technology Industry
CEO Kendall Stevens explains the shortcomings of Floor Planning used by IT companies for financing the distribution channel and how supply chain financing (SCF) can overcome these while enhancing sales efficiently
ZUG, Switzerland, May 16, 2019 /PRNewswire/ -- Floor Planning has been broadly adopted in the IT industry in the US to finance the purchase of equipment from technology Original Equipment Manufacturers (IT OEMs) by Distributors. For IT OEMs, distribution is their principal route to market, hence, they establish Floor Planning programs to promote sales through the distribution channel and usually absorb the cost.
Pros & Cons of Floor Planning
The main advantages of Floor Planning are the sales growth generated for the Seller and the improvement in cash flow for Buyers obtained cost-free. However, Floor Planning has some drawbacks:
- "Handcuffing" of Buyers' assets, as they are required to pledge a substantial amount of assets as collateral, limiting their growth potential.
- No balance sheet benefit for Seller as Floor Planning does not generate working capital benefits nor cash flow advantages.
- Repurchase commitment from Seller, which implies an increase in contingent liabilities as it is committed to repurchase the goods in case of re-possession by the Funder due to non-payment from Buyers.
- Disadvantageous tax implications for US Sellers, as Floor Planning interests are considered as debt financing charges, which has a negative tax impact given the Tax Cuts and Jobs Act (2017).
Supply Chain Finance as an alternative solution
SCF comprises various types of programs for financing companies' working capital. Receivables-based Distribution Financing and payables-based Growth Financing are ideal alternatives to Floor Planning as they overcome its main weaknesses. "In particular, Distribution Financing with benefits for both, Seller and Buyers, is a proven sales-enhancing solution successfully implemented by numerous IT OEMs in multiple jurisdictions", comments Kendall Stevens.
Floor Planning |
Distribution Financing |
Growth Financing |
|
"Handcuffing" of Buyers' assets |
YES |
NO |
NO |
Balance sheet benefit for Seller |
NO |
YES |
NO |
Repurchase commitment required from Seller |
YES |
NO |
NO |
Read full report: Floor Planning in the IT Industry: Why it should come to an end
Alternative Distribution Financing Ltd. (ADF), part of the GSCF Group headed by Global Supply Chain Finance Ltd. (GSCF), specializes in Distribution Financing and Growth Financing for global IT OEMs and their channel partners worldwide.
Alternative Distribution Financing Ltd., Switzerland
Lucia Cardellino, +41-41-922-2222, [email protected]
SOURCE Alternative Distribution Financing Ltd. (ADF)
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