The Lifecycle of a Finance Contract

Today we’re going back to basics. We’re going to talk about the lifecycle of a finance contract, from the initial credit application to the final payment being made. We will walk through each step of the process and share what an end-user and vendor-partner might experience at each step:

Credit Application

First things first, once the customer shows they have interest in leasing or renting the solution, the finance company will need to do a credit check. Some organizations may have them fill out a paper credit application, some may just ask for certain information to be emailed to the finance company, and some companies (like TimePayment) will have an online portal where the vendor the customer is obtaining the equipment from will enter the customer information and it will be submitted directly to the finance company. 

In a lease or equipment finance scenario, typical items needed to pull credit are the legal name, address, and phone number of the customer as well as information on the solution itself, such as the $1 amount, type of contract, and term. Some finance companies may require more information and have stricter requirements, but the above listed items are mostly universal.

Credit Review 

Once the finance company receives the above information, they will begin their credit review. They will have different credit sources they pull from depending on what industries they work in and what type of a finance company they are. Dunn & Bradstreet is a popular commercial credit source though there are plenty more.

After credit has been reviewed they will either approve, decline, or ask for more information on the application. If there is more information they are seeking, they will either contact the vendor or customer to get the additional information and continue their review until they come to a decision.

Document Creation

Once approved, lease or finance documents will need to be created for the transaction. These documents will lay out the terms and conditions of the agreement, the equipment being financed, the payment, and lots of other important information. The finance company might create these themselves or the vendor may have the capability to create these on their own. Once created, they will be presented to the customer for review and signature.

Agreement Commencement 

Once signed, the agreement will need to be sent back to the finance company for review and filed until the solution is implemented. At this time, they vendor will send the finance company an invoice for the solution. In many cases, a verification of the agreement and equipment delivery will take place. This may be a phone call from the finance company to the end-user customer or it could be a certificate of delivery and acceptance that the customer signs.  

Once commenced, the agreement is set in motion. The funding will be sent to the vendor that sold the solution and the customer will begin receiving monthly invoices from the finance company.

Monthly Billing 

From this point on, the customer will receive and pay monthly invoices from the finance company. Some finance partners may have programs that allow quarterly, annual, or variable payments which is something to ask your vendor about during the initial discovery process.

End of Term 

Once all payments have been made, the customer will have different options depending on what kind of contract they are in. They might own it at the end, it might go into month to month renewals, or they may have the option to return or purchase the equipment for an agreed upon amount.  Be sure you know what kind of contract you are signing before you agree to any terms, as you don’t want to be caught off guard at the end of the agreement.

There you have it, the lifecycle of a finance contract. This can vary from company to company, but the above steps and processes are standard operating procedure.