Canadian Equipment Finance Magazine Spring 2016

spring 2016 • volume 4 • issue 1 | www.canadianequipmentfinance.com

INDUSTRY REPORT

Lender Finance How does the capital stack?

Forecast: The Canadian economy in 2016 Technology: Top trends at equipment finance companies

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contents Spring 2016 Volume 4 Number 1 Publisher and Editor-in-Chief Steve Lloyd steve@canadianequipmentfinance.com Managing Editor Sarah O’Connor sarah@dmn.ca

Industry Report: Captives respond to changing customer expectations; White Clarke Group releases Global Leasing Report 2016; Computing forecast: Mostly cloudy in the year ahead

FEATURES

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Start by asking the right questions »14

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Your Business

Improving your business’ credit score through invoice factoring »18

FORECAST

Also Publishers of Payments Business www.paymentsbusiness.ca Canadian Treasurer www.canadiantreasurer.com

The Canadian economy in 2016 What’s old is new (sort of ) »4

Events

Where to go. What to see. »20

NEWS »6

Contact Management www.contactmanagement.ca

Technology

Direct Marketing www.dmn.ca Financial operations www.financialoperations.ca Made possible with the support of the Ontario Media Development Corporation Ontario Interactive Digital Media Tax Credit

Showtime

Top technology trends at equipment finance companies

Trade shows are about more than showing up »16

Replacing front- and back-end systems remains a top priority, while big data, cloud and mobile gain ground »22

canadianequipmentfinance.com | Spring 2016 | CANADIAN EQUIPMENT FINANCE

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Forecast

The Canadian economy in 2016 What’s old is new (sort of)

By Gordon Onley

et’s go back 18 months to summer 2014. Oil is at $100 per barrel, the Canadian dollar is near par with the U.S. greenback, Harper is comfortably sailing through his second term and the Conservatives have governed Alberta for over 40 straight years. Now what if someone told you that by the end of 2015 oil will have plummeted below $35, the Canadian dollar would worth only 75 cents USD, Justin Trudeau would be PM and Alberta would have a NDP government? The truth can sometimes be stranger than fiction. Thus when it comes to predicting what’s going to happen in the Canadian economy in 2016, many variables have to be considered.

Canada’s central bank, the Bank of Canada, has forecasted “modest growth” in 2016 for the country as a whole. As a

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result most of the major banks in Canada have predicted the BOC will raise interest rates by somewhere between 75 and 125 bps in 2016. At the end of last year the U.S. Federal Reserve raised rates for the first time in almost a decade.

But for many of us in the finance sector, who still remember the pain of the last recession, this is good news. Regardless of the increase in rates that we are likely to see, commercial credit will remain cheap and fairly easy to obtain. However, we should remember that this is a general statement and various regions throughout Canada will experience this “modest growth” in different ways.

Here’s brief snapshot of what we may see:

Alberta’s oil odyssey makes headlines Even when oil was at $100 per barrel, the Province of Alberta didn’t always warrant the top spot in news stories on the

Financing opportunities should be plentiful in 2016, especially in B.C. and Ontario where many sectors… are anticipating a good growth year.

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CANADIAN EQUIPMENT FINANCE | Spring 2016 | canadianequipmentfinance.com

Canadian economy. However, the near free fall in crude prices shocked most Canadians and resulted in a significant interruption to a provincial economy that many considered to be recession-proof.

The reasons for the collapse in oil’s price has been attributed to everything from a general worldwide over supply to an OPEC conspiracy led by Saudi Arabia to drive out competitors which have higher production costs, like Alberta and U.S. shale producers. If OPEC is attempting to squash its competition one would have to question their logic, considering oil revenue represents over 60 per cent of Saudi Arabia’s GDP (only 22 per cent of Alberta’s GDP is tied to the energy sector, including mining).

Regardless of the cause of the collapse in oil prices it has resulted in a lot of bad news being posted on Alberta’s economy.

Remember the story that went viral on the internet of over 130 cars abandoned at Edmonton’s airport, presumably left there by out-of-work oil and gas workers flying back home?

Statistics Canada recently reported Alberta’s EI claims were at its highest number since January 2010. Alberta’s increased unemployment has been dramatic, but is it really that bad? Prior the downturn Alberta effectively had full employment participation with

Forecast unemployment running around 4.5 per cent. And with the collapse in oil there has been a sharp increase but only to 6.5 per cent (unemployment numbers that are on par with B.C. and Ontario).

Some believe the province’s fortunes will take a turn for the better in 2016.

Dan Terra, VP of leasing and finance for LeaseX Financial in Calgary, summed up Alberta’s situation as follows: “Yes, we are in a downturn, but the province has been there before and we will be there again. It is a downturn but not devoid of opportunity and success.” Mr. Terra points out that Alberta’s economy has increasingly diversified outside of oil and gas. Businesses and lenders are finding growth opportunities in areas such as manufacturing, agriculture, agri-food and forestry.

U.S. resurgence will boost B.C., Ontario While Alberta will attempt to grow through its challenges, B.C. and Ontario

are expected to see the biggest economic benefits in 2016.

Undoubtedly the biggest growth driver for next year for B.C., Ontario and the rest of Canada is the resurgence of the U.S. economy. According to the Commercial Finance Association, asset-based lending (ABL) loan commitments have risen by more than seven per cent year over year in the U.S. ABL loans, which are tied to collateral such as inventory and invoices, are often seen as a good leading indicator of economic optimism in the U.S. Financing opportunities should be plentiful in 2016, especially in B.C. and Ontario where many sectors such as manufacturing, tourism and agriculture are anticipating a good growth year. Some sectors such as forestry in B.C. will even face supply challenges trying to meet increased U.S. demand.

And while the collapse of oil and gas has largely hurt the Canadian economy, it has put an extra $300 billion into the pockets of average Americans. This along with other

factors such as lower personal debt has given Americans the confidence to spend again. This is good news for Canada’s export-driven businesses. Increased U.S. demand coupled with a lower Canadian dollar will result in excellent growth opportunities for all of Canada.

Transportation companies specifically have been gearing up for this increased demand south of the board with a overall 25 per cent increase in 2015 of the number of Canadian trucking firms registering to transport commercial goods into the U.S. Notwithstanding some regional and sectorial challenges, such as in oil and gas, Canadian equipment finance companies should see positive opportunities in 2016, as the combination of a lower Canadian dollar combined with the growing U.S. economy translates into higher demand for Canadian-manufactured goods.

Based in Calgary, Alberta, Gordon Onley helps owners of small- to medium-sized businesses succeed by providing them with the cash and/or working capital that they need to grow their companies.

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canadianequipmentfinance.com | Spring 2016 | CANADIAN EQUIPMENT FINANCE

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News

Captives respond to changing customer expectations The battle for future captive car finance business The battle for captive auto finance business in the future will be won—or lost—in the world of digital real estate, according to Jonny Combe, general manager product & channel development at BMW Group Financial Services. And the reasons are obvious when more than half of Generation Y car buyers would currently prefer to visit the dentist than haggle with a car salesman and when many view visiting a car showroom “rather like visiting a funeral.”

Combe told delegates at the recent White Clarke Group Auto Captives Summit in

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London that the disruptors in the shape of the new breed of financial technology (FinTech) companies have already spotted where the demand lies in the new generation of car buyers.

“With Gen Y buyers forecast to be accounting for around 75 per cent of all new vehicle sales by 2025, you will have to get your selling approach correct or you’ll be dead on the water,” he stressed.

Combe told of a BMW report into consumer purchasing behavior which revealed that whereas in 2003 car buyers made an average of four visits

CANADIAN EQUIPMENT FINANCE | Spring 2016 | canadianequipmentfinance.com

to a showroom prior to making a purchase, by 2013 this had diminished to 1.5 visits. “Also,” he said, “in 2003 only one per cent of car buyers researched their car online before making a purchase—by 2013 this had risen to 92 per cent.”

“Soon,” he added, “they will be making the purchase itself online—by their mobile phone.”

To combat this, captive finance auto companies need to revolutionize their websites, especially with regard to video content and mobile optimization until they become “designed as mobile-first.”

Combe showed delegates a range of potential and actual disruptors which are quietly beavering away, changing the way people will buy their cars through their methods, their techniques and their mobile technology.

“Previously,” he said, “the battle to win car sales was fought out in the showroom— but no longer, because Millennials and Gen Y buyers will simply not be there.”

News

White Clarke Group releases Global Leasing Report 2016 The White Clarke Group’s Global Leasing Report has become the definitive analysis of country trading environments and world trends in auto and asset leasing. This is the 10th year that the report has featured as the keynote commentary of the World Leasing Yearbook.

The 2016 edition is available as a free download at whiteclarkegroup.com.

Ed White, president & CEO White Clarke Group and author of the report, summarizes the tenor of the latest edition: For the fourth consecutive year since the global economic crisis, the leasing industry has enjoyed growth in new business volumes, and the outlook is cautiously optimistic.

The top 50 countries reported 6.83 per cent growth in the value of new contracts closed in 2014, from $883.96 billion in 2013 to $944.31 billion. Three regions, North America, Europe and Asia, account for more than 80 per cent of world volume and together almost matched the previous year’s global total for new business leasing and hire purchase.

Latin America, measured by portfolio value (the only readily available data for most countries in the region), exhibited positive growth in 2014—18.7 per cent in U.S. dollars.

For the Australia/New Zealand region we have now encompassed chattel mortgage

transactions into their results.

Comparing performance with the previous year, the region experienced growth in new business of four per cent in the local currency and remained broadly static when expressed in U.S. dollars.

All eyes are turned to Asia, where China’s burgeoning leasing industry is fueling

market growth. In 2014, China reported an increase of 31.06 per cent in new business volume. However, in 2015 that figure is expected to have plateaued amidst the economic slowdown.

With such uncertainty, the outlook in all six regions is one of just cautious optimism.

To send press announcements, please direct them to Steve Lloyd, Editor-in-Chief, at steve@canadianequipmentfinance.com

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canadianequipmentfinance.com | Spring 2016 | CANADIAN EQUIPMENT FINANCE

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News

Computing forecast: Mostly cloudy in the year ahead portfolio management software and support.

“From our viewpoint it definitely looks like everything is going to the cloud,” Williams said. “People are getting more comfortable that off-site cloud provisioning is secure. The whole concept of ‘I’ve got to own my own servers and physically reach out and touch them’ is going away. We think off-site cloud provisioning will continue to be more prevalent in the coming year.”

Unlike a private server room where a company operates servers within its corporate brick and mortar under the supervision of an IT department, in a private cloud environment a company leases space on servers belonging to a data

INDIANAPOLIS – Data storage and server locations are likely to change for many in the equipment leasing industry in 2016. Instead of storing data and running applications on their own dedicated servers down the hall, files and other information will be housed on off-site hardware owned and maintained by someone else.

The so-called “public” cloud, provisioned as “private” cloud, will move into the business mainstream in the year ahead as companies look to improve efficiency and stability, predicted Doug Williams, chief information officer for JDR Solutions Inc. (www.jdrsolutions.com), an Indianapolis-based provider of equipment lease finance

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CANADIAN EQUIPMENT FINANCE | Spring 2016 | canadianequipmentfinance.com

centre facility.

Often these cloud service firms serve multiple customers from warehouse-size centres containing row upon row of servers. Cloud service providers are responsible for provisioning redundancy, repairing and replacing hardware and building facility security while their customers are responsible for securing the data they store on the provider’s servers.

“Data centres originally were environments where the data centre operators managed the electricity, the internet feeds coming in, the air conditioning and the server racks, and I as a customer owned the hardware—the servers, switches, routers, firewalls, infrastructure—and I leased

space on those racks,” Williams said. “If the hardware failed it was up to me and my team to fix and replace the equipment.

Data centres now have taken on those responsibilities and also make sure everything is mirrored and backed up.”

When JDR Solutions began in 2001 it offered a cloud service called “hosting” for customers’ lease portfolios on JDR-owned servers. Today, JDR manages client accounts on servers in multiple U.S. locations and maintains relationships with several international cloud service companies.

Despite the complexity of the market one thing is certain when making computing forecasts, Williams said: The cloud is here to stay.

KEEP UP TO DATE AND INFORMED BY VISITING OUR WEBSITE DAILY. Canadian Equipment Finance magazine posts news, insights, updates and breaking stories as they happen.

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Feature

Lender Finance How does the capital stack? he Financial Crisis of 2008 was tantamount to a financial earthquake altering the financial services landscape forever. Among its immediate casualties were venerable financial institutions such as Bear Stearns, Lehman Brothers, AIG, Fannie Mae and Freddie Mac. In the ensuing aftershocks, new regulations such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and The Third Basel Accord targeted the banking industry as the primary culprit of the crisis and sought to reign in their predatory lending practices and shaky capital structures. These regulations created new fault lines as banks’ lending practices shifted towards ‘safer’ asset classes. As a result, new non-bank lenders entered the consumer and business markets to fill the void the banks left behind. Does this portend a seismic shift in how the banks will participate in the equipment leasing industry? Are banks withdrawing from their long-standing role as funding sources for leasing companies? How are the capital raising activities of independent lessors responding to this potential change?

While both new and pending regulations continue to cast uncertainty on the overall banking industry, the lender finance market is thriving as is the banks’ appetite to lend to the equipment leasing industry. While it is difficult to estimate its overall size, the lender finance market tends to be quite elastic reflecting economic conditions as well

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CANADIAN EQUIPMENT FINANCE | July/August Spring 2016 |2015 canadianequipmentfinance.com | canadianequipmentfinance.com

Feature as new, financeable asset classes. To that end, the emergence of alternative lenders, including business development companies (BDCs) and payday lenders, offer strong growth opportunities coupled with very attractive lending margins. These lenders see more modest growth in equipment leasing although they do recognize that the industry, as a whole, performed well during the Great Recession, a significant strength compared to these newer asset classes.

The number of lender finance participants is greater today than at the turn of the century given the strong growth rates and attractive margins in a variety of asset classes from the well-established leasing industry to financeable new and emerging asset classes. The complexion of these new lenders is an interesting mix of traditional banks, FinTech venture capital, private equity and, to a lesser extent, insurance firms. Banks are attracted to the lender finance market because it allows them to participate in certain asset classes that are difficult for either regulatory, structural or geographic reasons. Lender finance enables them to develop significant scale in origination, asset and obligor management.

So what does a thriving lender finance market with new types of lenders imply for independent lessors?

Although there are more lenders with an appetite for lease assets in the space, they are discerning and methodical in selecting on which horse to place their capital. Simply put, with performance comes options for funding. Strong independent lessors demonstrated their ability to weather a financial crisis and emerge with performing portfolios and stronger balance sheets. Those in this category boast more than $25 million in equity value and post annual volume levels north of $250 million.

Some independents, in the midst of the crisis, were committed to preserving the balance sheet through both additional amounts and sources of equity.

Paramount to a lender finance provider’s view of an attractive client is how well the management team has set a course for growth and followed through

on delivering excellent overall portfolio performance. Bank lenders first and foremost want a management team that has honed a successful business strategy and adhered to it while managing the associated lease underwriting with focus and discipline.

Large independents are experiencing more flexibility in bank line structure amid pricing that improved and has now stabilized post crisis. Lender finance providers are more likely to offer flexibility in structuring advance rates than pricing. Most lessors have multiple bank lines with costs associated in the 100-200 basis point ranges over 30 day London interbank offered rates.

heightened regulatory environment in the U.S. and Europe through tightened covenants and strict requirements.

Optimizing funding strategy in the midst of the new regulatory reality for lenders has created a new challenge in the effort to maintain a consistent capital funnel. Moreover, the strategy must enable the business strategy by providing funding for the right new business volume, mix of credits, transaction sizes and types. In this post-Crisis environment, the optimal approach to accomplish this is to maintain diversity both in number, type and geographic origin of lending institutions. Larger independents have multiple banks lines

Optimizing funding strategy in the midst of the new regulatory reality for lenders has created a new challenge in the effort to maintain a consistent capital funnel.

Securitization is the perfect funding pairing to bank lines for independents strong enough to access the assetbacked market. Annual or semi-annual securitization issuance freeing up bank lines for future volume is the most common funding framework. Pricing for securitization is typically 35-50 basis points better than bank lines.

Only the largest independents can satisfy the arduous, costly legal and reporting requirements to issue and service securitization. For those with the resources and size sufficient to have reentered the securitization market postcrisis, it is once again a powerful tool to ensure ability to grow and optimize overall blended cost of funds.

Capital continues to flow into the equipment leasing market based on the strength of the assets yet the new regulatory environment for U.S. and European Bank lenders has had a mirroring effect on independents.

They feel the effects of changing capital requirements compliance with a

and have shown a preference for a mix of U.S.- and Europe-based lenders.

The strong performance of equipment leasing portfolios and the relatively higher yields they offer are beginning to garner the attention of non-traditional lenders to the space. This dynamic on top of regulatory constraints faced by bank lenders and increasing desire for funding of nonstandard contracts as well as continued technology innovation has created the perfect environment for new entrants. Insurance companies and hedge funds are among the strong new entrants. Although structure and cost may be higher than traditional bank lines for vehicles offered through these new entrants, the trade-off may well be worth it for independents looking for breadth and flexibility within their stable of funding sources.

Although banks have had to make adjustments to their terms and structure in funding lines offered to independent lessors, lending into the space remains very attractive to banks as does

canadianequipmentfinance.com | Spring 2016 | CANADIAN EQUIPMENT FINANCE

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Feature participation in the direct origination of leasing assets. We have found no evidence to suggest banks are pulling back on lender finance or their desire to grow their direct leasing businesses.

Recent M&A activity provides evidence that banks intend to grow their leasing businesses through acquisition.

Beyond the immediate asset growth acquisitions offer, the cost of funds advantage banks have over independent lessors adds an instant bump to margins over and above the already superior yield these assets offer to traditional bank loan products. Significant examples post crisis of banks acquiring leasing companies include; City National’s purchase of First American, Wells Fargo’s 2016 acquisition of GE Capital’s equipment finance business, CIT buying Direct Capital in 2014 and Umpqua Bank’s 2013 purchase of Financial Pacific.

Challenges for lenders Increased regulatory requirements remain a top concern for all lenders across the financial services landscape.

Banks are finding it difficult to stay ahead of the regulatory curve given continued uncertainty around potential new areas of regulatory focus and even stricter capital requirements. The challenge is continuing to meet the heightened levels of regulatory scrutiny and additional compliance requirements while combating chronic regulatoryfatigue. Aggravating matters is the cost of compliance per Section 1071 of DoddFrank Wall Street Reform, which not only raises the cost of borrowing, but also places a drag on overall bank profitability.

Another related regulatory challenge is whether regulators will impose the definition of highly leveraged transactions (HLT) lending on lender finance. The banks themselves are left to educate the regulators on the differences in HLT lending (which dates back to the 1980s during the HLT lending crisis) and lending to BDCs and alternative lenders.

Regulators are somewhat confused in that lending to both this type of financial lender does not meet the leveraged lending hurdles. Recently, regulators decided that lending to BDCs will be classified as “indirect leveraged lending” 12

which should be combined with direct leveraged lending under the terms of the HLT definition. It is not known what the impact will be on overall bank HLT limits. There’s one other area where some bankers think the regulators might apply the HLT definition—lending to leasing companies. While not formally articulated by any regulator at the moment, bankers need to teach two other lessons: one, while the business model employs leverage, leasing that leasing is not “leveraged lending” per se, because the lessor actually retains ownership of the asset and two, more than two-thirds of the industry’s originations qualify as traditional financing structures and not true leases.

The final major challenge is recovering from the adverse or unseen consequences of tightening of risk acceptance criteria during the Financial Crisis. Forced to clean up their balance sheets and facing a lack of liquidity, banks raised their lending standards and only funded pristine credits and important customers. One casualty of that pullback in credit availability was the small and medium size businesses.

As a recovery ensued, a new breed of competitors emerged—the alternative Lenders—and filled that void. Today, this new entrant is one of the fastest growing competitors, taking away historic bank customers. Another pressure comes from FinTech venture capitalists that are using new technologies to reach these customers and therefore are disrupting the traditional go-to-market practices.

Opportunities for lenders Lender finance is an area of growth for lenders. The market is growing quickly with the emergence of several new asset classes such as alternative lenders, payday lenders and the like. Margins on lending facilities to this new breed of lenders are quite high, thus offering substantial profit opportunities. As that sector grows, it may also grow up in its need for financing products from plain vanilla credit lines to even more lucrative products.

While the lender finance market offers significant growth potential for the banks, there is strong evidence that the banks remain committed

CANADIAN EQUIPMENT FINANCE | Spring 2016 | canadianequipmentfinance.com

to participating in the direct leasing market. For the majority of banks, their equipment leasing businesses came out of the Financial Crisis as one of their best performing businesses. Even today, five years post-Crisis, spreads in the leasing portfolio are wider and improving compared to the traditional core banking business. Wider margins and strong portfolio performance over the cycle are two reasons why banks are eager to add leasing assets. From an M&A perspective, banks are active buyers of leasing companies and portfolios as they have excess capital to deploy in the current market. Banks likely will be more successful buyers of these assets as opposed to the independents given the banks’ natural funding advantage. Of note is the increasing number of small and mid-sized banks that are buying leasing businesses.

Challenges for independent lessors Availability of funding for growth is a significant and ongoing challenge for independent lessors. Only the largest independents—roughly 20 per cent of the Equipment Leasing and Finance Association’s membership—qualify for the underwriting criteria required by the banks. There are however 108 independent lessor ELFA members representing 51 per cent of total membership—a statistic that clearly highlights the need for funding beyond the target market for large lender finance providers.

Compared to bank lessors, the all in cost of funds is 100-200 basis points higher, even for independents that can access bank lines and the securitization market. That cost of funds spread gap is much wider for medium to small lessors. Medium to large independent lessors, which compete directly with banks for transactions, must continually enhance their value proposition focusing on flexibility of offering and service excellence, coupled with expertise in select equipment types, industry specialization and focused client relationship management in order to bridge the pricing gap.

The uncertainty caused by

Feature regulatory pressure and fluctuating capital requirements by the governing authorities across the globe has encouraged independents to more widely diversify their funding sources. These regulatory pressures on lenders, coupled with growing customer requirements for higher levels of service and software deals, and other non-standard types of contracts are creating concern about the potential for significant portions of their volume to become ineligible for funding because of existing financial covenants around eligible assets.

Alternative lenders are beginning to nip at the heels of traditional independent lessors. A tremendous amount of capital is chasing FinTech alternative lenders, most of whom are offering working capital and loan type products. There is a clear concern that the amount of capital in the space outweighs the depth of credit and underwriting expertise, positioning these lenders for potentially large losses in the next economic downturn. The popularity of such lenders is attracting scrutiny from regulators. If lenders in this space begin to suffer losses, it may exacerbate regulator concern creating a spillover effect to not only alternative lessors but potentially small ticket lessors adding cost and complexity that may render some business models unsustainable.

Across the independent space, there is growing concern that the CFPB will begin to write specific requirements associated with rules mandating non-discrimination on credit decisions. Independents worry that the CFPB will begin to require them to gather and report on data related to credit applications that they do not collect today precisely because they do not want to have any demographic information that would allow such discrimination to occur.

Opportunities for independent lessors Independent leasing companies have been able to grow and thrive in no small part because of their nimble, yet disciplined, approach to origination and portfolio management. The strong performance of equipment lease assets during and post crisis has landed them among the most highly sought after

asset classes. The assets are relatively low risk and offer higher margins than many bank loan products. This strong combination will keep liquidity flowing into the market.

The strength of the asset class will keep banks interested in lender finance and growing existing relationships. The securitization market has strengthened post crisis and continues to provide a consistent tool for medium to large independents to fund their growth. The strong performance of the leasing asset class has not gone unnoticed by nonbank lenders and investors. Institutional players such as the insurance industry, hedge funds, venture capital and business development companies have all made forays into investing in the industry on both the debt and equity side. These non-traditional lenders in the space may have arrived just in time to help create funding structures for deals with higher service and software content and nonstandard contracts—a chasm the banks are unlikely to cross.

Regulatory pressure has meant that some banks have narrowed the focus of their own direct leasing companies reducing the competition in the lower credit and smaller ticket credit sphere.

This gap is creating an opportunity for alternative lenders as well as a chance to maintain or improve pricing margins for smaller to medium-sized independent lessors active in this product space.

The drive for asset growth among banks and the relative margin attractiveness of leasing assets have made independent lessors increasingly attractive M&A targets. Several regional banks have acquired small to medium leasing companies, buoying perceived value of leasing companies and their ability to attract funding.

Lender finance will continue to be a stable source of capital for the independent lessors that meet the lending standards.

Should there be a credit event with alternative lenders, independent lessors will likely benefit from a flight to quality.

ERS OK D BR ANTE W

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Please contact Jason Bonneville • jason@advantleasing.com 905-335-3301 ext 224 • www.advantleasing.com canadianequipmentfinance.com | Spring 2016 | CANADIAN EQUIPMENT FINANCE

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Feature

Marketing that makes a difference Start by asking the right questions

By Robert Adeland

s the customer always right?

In the long run, the answer has to be “yes,” of course—but it’s only true if you ask your customers the right questions.

We often find that marketers start their planning process by asking “what do we have to sell?” and then “who can we sell it to?” Advertising and sales plans then offer a buffet of their goods and services and leave it up to the customers to make the right choice.

The problem is customers might see what they want but they may not see what they need. This kind of purchase exposes the seller to dissatisfied customers. To build a longterm customer base, marketers put themselves in a stronger position when they establish a track record for solving needs, not for selling products. And that

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CANADIAN EQUIPMENT FINANCE | Spring 2016 | canadianequipmentfinance.com

journey begins with a very different question.

Our consulting work advises clients to develop plans based on how customers buy, instead of how their company sells. The better questions you should ask at the start of the marketing process are “why do customers buy in this sector” and then “what can we offer to meet that need?”

What’s the difference?

When you ask these questions, you soon find that all customers are not alike. Even if you have just a single product to sell, customers are likely to have different reasons for buying it. Find out either through market research or having that conversation with your client to find out: ◉◉ Who is actually making the buying decision? ◉◉ What are the major pain points

Feature they are trying to overcome? ◉◉ Where do they look for product alternatives and guidance? ◉◉ Why do they buy another product instead of yours?

Learning the differences in your customer base puts you in a much better position to start building real relationships. Instead of advertising to “the market,” you can develop communications that speak to real customer needs, “person to person.”

Reverse the process Putting customers first in your planning process will help your business grow in a number of ways. First, by focusing on fewer ears and eyes at once, you can streamline your messages and waste less time filtering out poor prospects from your sales and follow-up programs.

Your person-to-person advertising will

resonate more with the right people, it will convert prospects more efficiently and it will cost less.

When you look more closely at customer needs, you can identify gaps in your product line or feature set and use this to drive future product development.

While new products are coming onstream, you get to focus your efforts on products that have the best prospect of succeeding. Life is so much easier when you sell what people want to buy!

A customers-first approach opens the door for customers to do more of the talking. Your team can engage in more meaningful conversations about the customer’s needs and opportunities.

This is the foundation for “relationship selling,” adding value to your business beyond the value of its products. In this kind of sales relationship, customers will start to call you first for a solution when the catalog doesn’t have the answer.

Planning for ‘social’ change If you have any aspirations at all of marketing effectively through social media, understanding the personal preferences and idiosyncrasies of different customers is your only hope.

Social media is inherently more personal and it speaks to more than the buyer’s immediate product needs. The appetite for relevant, topical content is endless, but it’s up to you to know what might appeal to a specific group of followers.

Now you’re putting the horse back to the front of the cart. Your customers truly are always right. Get them pulling for you when you set out to plan your marketing. And don’t be surprised if they start to pull you in new directions.

Robert Adeland is president of Marketing Strategies & Solutions, an integrated marketing firm specializing in B2B communication.

Prior to establishing Marketing Strategies & Solutions in 1997, Robert was familiar with both sides of the marketing desk. Over the past 35 years, he has established himself as a professional marketer in both Canada and the United States.

He can be reached at robert@marketingstrategiesandsolutions.com.

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15

Showtime

Jennifer O’Neill

Trade shows are about more than showing up

By Robert Adeland

or many industrial firms, trade shows and conferences are the most costly line items in the annual marketing budget—but they get the least attention as a marketing tool.

Too often, trade show planning is all about the ‘bricks & mortar’ and the logistics of sending staff to the venue.

Once they arrive, sales reps are thinking, “I don’t know why I’m here. I could be back in my territory selling.”

Like every marketing activity, planning a successful trade show begins with understanding who is going to attend and deciding how you can take best advantage of the opportunity to present your story to them. As the crowd rolls past your booth, attendees might look like a faceless, nameless mass—but here’s who is really out there:

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◉◉ 50 per cent of attendees come to see new products; ◉◉ 35 per cent are at the show for the first time; ◉◉ 15 per cent come for general information; ◉◉ 10 per cent come looking for a specific product—the “power buyer” with an agenda will stop at a maximum of 17 booths; ◉◉ 49 per cent operate at a managerial level or higher; and ◉◉ 83 per cent have not received a sales call from your organization in the last 12 months.

Set your objectives The goal of a show booth should be a reflection of your overall marketing goals. Decide which goals match up with the focus and attendees of the show and set your objectives accordingly.

Most important, communicate these

CANADIAN EQUIPMENT FINANCE | Spring 2016 | canadianequipmentfinance.com

objectives to your booth staff and give them measurable targets to achieve! If you can’t think of a good reason to go to a show, don’t go!

If you aren’t sure where to begin, here are some typical ways to measure the effectiveness of a particular show: 1. As a sales opportunity, generating immediate sales or qualified sales leads; 2. As a communication platform, to raise awareness for a new product, renewed interest in an older product or to assert your brand values; 3. As a recruitment opportunity, to prospect for new dealers or attract new sales people; or 4. As a market research tool, to gauge reaction to a new product or discover new uses for your products.

With your objectives set, you can begin planning a true marketing initiative, starting with strategies to promote your

Showtime show highlights before the event, then focusing on specific activities at the show and finally following up afterwards to capitalize on your successes.

Do’s & don’ts on the floor 1. DO wear the company colours.

Customers expect your staff to convey a sense of professionalism and it helps them to separate those working the booth from the visitors.

If it’s your job to choose the dress code, remember that not everyone looks good in everything. Select styles and colours that work for everyone—your sales staff will thank you for it.

2. DO wear a name badge. People want to address you by your name, especially if you have introduced yourself first.

3. DON’T drink coffee or pop in the booth. Your booth will quickly acquire a messy kitchen look and potential customers will not approach you if you appear ‘too involved’ with your coffee.

4. DO mind your body language. Don’t stand with your hands on your hips or your arms crossed across your chest. These stances signal an unwelcoming demeanor and a disinterest in your product or customers.

5. DO approach customers. If they look interested, don’t let them wander away.

6. DON’T spend more than three or four hours at a time in the booth. Neither you nor anyone else can stay alert in a busy booth that long. Take at least an hour break between shifts to eat, have a coffee or take care of other business outside the booth.

7. DON’T send new employees that don’t fully understand your business to the show. If you have new employees you’d like to expose to the industry, assign them to check out the competition and to prepare an evaluation on their strengths and weaknesses. Fill your booth with knowledgeable experts.

8. DON’T waste time with competitors who come to your booth and want to tie you up.

9. DO turn off your cell phone. People have made an effort to come to your

booth for your product or service— the least you can do is to acknowledge their presence with your attention.

They’ll stand off if you’re already engaged on the phone or with your laptop. If you must take a call, step out of the booth and have someone else cover for you.

10. DO remember that shows are hard work and you are there for a purpose.

You’ll never get a second chance to make a first impression with all those people you miss by not being proactive and attentive.

Robert Adeland is president of Marketing Strategies & Solutions, an integrated marketing firm specializing in B2B communication.

Prior to establishing Marketing Strategies & Solutions in 1997, Robert was familiar with both sides of the marketing desk. Over the past 35 years, he has established himself as a professional marketer in both Canada and the United States.

He can be reached at robert@marketingstrategiesandsolutions.com.

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canadianequipmentfinance.com | Spring 2016 | CANADIAN EQUIPMENT FINANCE

17

Your Business

Improving your business’ credit score through invoice factoring

By Oscar A. Rombola

our business’ credit score should be carefully monitored as part of a sound financial strategy. Oftentimes, potential clients run all kinds of searches on your company to assess your current credit relationships.

Whether there is a financial institution conducting its due diligence or some other supplier, your business’ credit status is often the first level of credit analysis on the company. Business integrity is the best currency; it pays to have a focused long-term goal to foster a strong credit rating for your business.

Y

Solid credit rating & financial institutions Commercial bank lending is, in most cases, the first perceived option for entrepreneurs.

Company owners’ first impulse is to seek an operating line of credit from a commercial bank. When the company meets the bank covenants and it has a profitable financial statement most banks would agree to lend money. Commercial loans as well as lines of credit come with 18

strict covenants that may, in the long run, prevent the applicant from having control over the management of the loan.

If the company has not yet established a solid credit rating, or its financials are compromised by a history of negative cash flow, then qualification for the line of credit will be, probably, denied.

Potential clients considering entering into a service agreement with the company will run a credit search when doing their feasibility analysis. A poor credit rating will adversely affect your company and future plans for expansion may be hindered.

It pays to pay on time Many businesses underestimate the effect of not paying the bills on time.

Companies will depend on their own accounts receivable to pay when they are paid. The intrinsic relationship between receivables and payables play havoc when accounts are not up to date. Invariably, clients and suppliers play ‘bank’ to each other by extending terms and delaying payments. Although not a solution, companies use this system to assist their cash flow. It’s a much-used way of conducting business but, ultimately, it can have a negative

CANADIAN EQUIPMENT FINANCE | Spring 2016 | canadianequipmentfinance.com

impact on the company’s credit rating.

Payments neglected over extended periods of time are deemed delinquent, incurring late fees as well as negative credit scores. Vendors and suppliers may stop extending credit or services to the business in favour of customers who pay on time. Paying bills on time improves both your credit rating and your company’s credibility.

Bank financing often curbs the growth of a company In the current economic environment, many bankers are wary of small- and medium-size companies as they consider them to be high risk. Certain industries are definitely outside banks’ appetite for new business. Credit risk plays a strong role in the underwriting of the account, among other elements including a sound balance sheet and a solid credit history.

Whether the company is a startup or a company with a few years in business, Canadian banks tend to operate in a very conservative manner. Meeting the banks requirements may prove to be almost impossible for new business.

Take for example the transportation industry. In today’s economic environment of high costs, weaker than

Your Business expected volumes and stiff competition, most trucking companies have seen the effect on their financial statements. Even if a trucking company does manage to qualify for bank financing, they often struggle to uphold the restrictive covenants that govern the terms of the loan.

These restrictions limit the amount of debt a company can take on to buy essentials such as equipment. This often curbs the growth of a company and ties the hands of the owners.

Invoice factoring solves financial challenges As difficult as it may be for established businesses to maintain good credit ratings, it is next to impossible for startup and growing companies to provide a solid credit history at the time when financing is required. Fortunately, there are alternative financing companies that offer specialized services such as invoice factoring to solve the many financial challenges specific to the industries.

Invoice factoring is an extremely beneficial cash flow tool and, when used properly, it can build long-term financial stability.

Factoring the company’s invoices creates instant positive cash flow. With invoice factoring the company will have the cash needed to fund operations each and every day. The more the business grows, the more funds become available to support the operation.

An alternative financing option to factoring involves a factoring line of credit. A factoring line of credit can remedy situations such as when the customer wants

to pay in 60 days but the best price vendor wants his money up front and the employees have, also, to be paid. A business line of credit is a sustainable solution to overcome cash flow fluctuations. Businesses will often qualify for a factoring line even though they may not fulfill the banking requirements for a traditional line of credit.

Qualifying for a factoring line of credit is less convoluted than a traditional line.

Like account receivable factoring, the line is based on the creditworthiness of the customers as well as the personal credit and the financial strength of the business.

Improving business relationships and financial status

Credit searches: Be on top!

Just as banks use credit scores to validate the company’s credibility, so should companies conduct credit searches on others.

Each new customer is a new debtor to the business and therefore a potential credit risk. In order to alleviate the risk, the company should conduct a thorough due diligence process that includes researching the potential customer’s credit score and an online search that includes social media. A reputable invoice factoring company that specializes in the industry will have a free credit search tool allowing their customers the ability to conduct credit searches for free.

Building successful relationships and establishing trust The growth of a company is dependent on two factors: building successful business relationships and establishing a trustworthy reputation. The credit rating of a company is an important metric that reflects these two factors.

Managed effectively, factoring of accounts receivable provides immediate access to cash which in turn is as good for the company’s credit rating as it is for its funding growth.

Oscar A. Rombola is managing partner at Accutrac Capital ITC Inc. (www.accutraccapital.com) and president of the International Factoring Association – Canada. He can be reached via orombola@ accutraccapital.com or ca.linkedin.com/in/orombola.

Managed effectively, invoice factoring will actually help to improve your credit rating.

The positive cash flow generated by invoice factoring will allow the company to pay bills and meet payments on time and in full. Some companies use the benefits of instant positive cash flow to obtain prompt payment discounts. As your company now makes all payments on time, you will improve business relationships as you build a stronger credit rating. In many cases, companies that once failed to meet the requirements for a banking line of credit now are able to qualify thanks to a stabilizing period of invoice factoring. By building their credit score through invoice factoring these companies have improved business relationships while improving their financial status.

canadianequipmentfinance.com | Spring 2016 | CANADIAN EQUIPMENT FINANCE

19

EVENTS

WHERE TO GO. WHAT TO SEE. Find out more about the conferences, exhibitions, seminars and meetings in your industry

2016 April 13-16 Factoring Association 22nd Annual Factoring Conference Scottsdale, AZ www.factoring.org

April 19-21 Equipment Leasing & Finance Association National Funding Conference Chicago, IL www.elfaonline.org

April 28-30 Nat’l Assoc of Equip Leasing Brokers NAELB 2016 Annual Conference Las Vegas, NV www.naelb.org

May 1-3 Equipment Leasing & Finance Association ELFA Legal Forum San Francisco, CA www.elfaonline.org

May 4-6

September 12-14

Equipment Leasing & Finance Association Public Sector Finance Forum Charlotte, NC www.elfaonline.org

Equipment Leasing & Finance Association ELFA Operations & Technology Conference Baltimore, MD www.elfaonline.org

May 12-13 FC Business Intelligence Analytics for Insurance Canada Summit Toronto, ON www.fc-bi.com

May 18-19 Equipment Leasing & Finance Association ELFA Capitol Connections Washington, D.C. www.elfaonline.org

June 5-7 Equipment Leasing & Finance Association ELFA Credit & Collections Management Conference Denver, CO www.elfaonline.org

September 12-14 Equipment Leasing & Finance Association Lease & Finance Accountants Conference Baltimore, MD www.elfaonline.org

September 21-23 Canadian Finance & Leasing Association CLFA Annual Conference 2016 Niagara Fall, ON www.cfla-acfl.ca

October 23-25 Equipment Leasing & Finance Association ELFA 55th Annual Convention Palm Desert, CA www.elfaonline.org

Visit us online www.canadianequipmentfinance.com/events.html

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21

Technology

Top technology trends at equipment finance companies Replacing front- and back-end systems remains a top priority, while big data, cloud and mobile gain ground taying competitive in a digital world is making replacement of front- and back-end systems a top priority for equipment finance firms, reveals the 2015/2016 Business Technology Performance Index (BTPI) released by the Equipment Leasing and Finance Association (ELFA) and Capgemini, a world-leading provider of consulting, technology and outsourcing services. The thirteenth annual BTPI finds that while the equipment finance industry has been a slow adopter of digital technologies due to the constraints of working with legacy platforms, strong recognition exists for capturing digital capabilities via replacement of back-end systems while continuing to make improvements on front-end workflows.

ELFA President and CEO Ralph Petta said: “ELFA is pleased to offer the thirteenth annual Business Technology Performance Index. We encourage our members to read the report to gain insight into the technology trends that equipment finance companies are using to drive their firms into new opportunities and improve operations.”

Michael E. Baez, manager of banking & diversified financials for Capgemini Financial Services, said: “In the wake of intensified competition, increasing compliance, shrinking margins and evolving customer demands, leading equipment finance firms are trying to meet these challenges by looking to replace their front- and back-end systems. Core legacy platforms are antiquated, expensive to maintain and in many cases don’t meet current or future

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business needs.”

Key findings of the BTPI report, which is based on industry research and input from ELFA members, include:

Replacement of front- and backend systems remains a top initiative for equipment finance companies in the near future Front-end systems generally refer to originations or the activity related to a transaction from the time of application to booking, including credit underwriting and documentation. Backend systems generally refer to servicing or the period after the booking of a transaction and include accounting, customer service, collections, end of term and asset disposition. ◉◉ Reversing the traditional focus on the front end, 40 per cent of the survey respondents indicated that a backend platform replacement would be considered in the next 18 months, while only 25 per cent said the frontend platform would be looked at. ◉◉ A total of 60 per cent of respondents indicated that their core back-end platform does not meet their future needs, while 40 per cent indicated that their back-end platform doesn’t meet their current needs. ◉◉ Nearly half of all respondents indicated that their core front-end platform does not meet their future needs, with 40 per cent of respondents looking for increased workflow capabilities. ◉◉ Data show that a majority of companies are more interested in establishing a single, enterprise-wide

CANADIAN EQUIPMENT FINANCE | Spring 2016 | canadianequipmentfinance.com

package-based solution, with almost 40 per cent reporting interest in implementing best-of-breed solutions from multiple vendors.

Big data, cloud computing and mobile adoption are set to grow ◉◉ A total of 61 per cent of respondents said big data is becoming a driver of current revenues as it helps them identify opportunities for cost savings. ◉◉ While a quarter of respondents do not currently have cloud computing and 60 per cent consider themselves adoption beginners, it is expected that cloud capabilities will grow in the coming year. ◉◉ Over half of the respondents indicated that mobile is a best-inclass offering and they have planned for it in the future, despite 60 per cent of companies currently ranking themselves at the bottom of an adoption lifecycle.

Effective digital strategies offer competitive advantage across equipment finance companies’ value chains. These include improvements in operational efficiencies, product innovation and access to new channels and markets.

The BTPI report offers strategies for equipment finance firms to improve their return on IT investment and a checklist of system replacement costs. It also provides insight into Capgemini’s Technovision framework to assess the business potential of new technologies, design principles and business transformation trends.

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