Consumer Contract Funding Process Part 2

If you are a business owner (or CFO) looking for consumer contract financing (retail installment contract financing,consumer receivables financing or financing for consumer notes) you should be able to provide input relevant to several general questions preceding the actual funding process.

For example, you should have a pretty good idea about what your comfort zone is relevant to discounts, reserves and annual percentage rates. The discount is the fee which the funding source is going to charge for the funding service being provided. The reserve is a hold-back retained by the funding source to mitigate against the possibility of loss. Depending on the funding source, it is generally refunded during the term of the contract relevant to the repay-ability of your customers. The annual percentage rate for most retail installment contract financing transactions (consumer receivables financing, financing consumer notes or consumer contract financing) is generally about 18%. This is paid by the customer during the term of the contract. If you as an owner are not comfortable with this rate, it can be lowered; but, generally this will imply a somewhat higher discount being charged to you the business owner.

On the other hand, if you are like some business owners you may not wish to think about discounts and reserves. You may have in mind a certain number in terms of " cents on the dollar" which you wish to receive. So if you are looking for consumer receivables financing (financing consumer notes, consumer contract financing or retail installment contract financing) and simply want to cash out your consumer contracts for a specific " cents on the dollar" amount this is also a possibility. Likewise, if you wish to implement this option and do not want to have an annual percentage rate written into the contract and charged to your customers, this is also a possibility. 

You might also be interested in a tiered purchasing program relevant to financing your consumer notes (consumer contract financing, retail installment contract financing or consumer receivables financing). A tiered purchasing program would involve variant discounts and reserves relevant to the quality of the paper being purchased. For example, the first tier might be for customers with credit scores of 700 and above (A paper). The second tier might be for customers with credit scores from 630 or 640 up to 699 (B paper). There might even be a third tier established for credit scores below 615, or you might opt to simply have customers with this low of credit to be serviced for a period of time until they show a consistent payment history, at which point the paper might then be purchased. The tiered program provides more favorable discounts and reserves for your more credit worthy consumer paper and advantages you as a business owner if you are providing a product or service to customers who tend to have a little higher credit scores than the average.

If you wish to offer different payment terms (for example one year, two year, three year etc.) you may certainly do this. However, if you know you are going to offer the same terms to all your customer, let's say for example a one year term, then you may want to consider the revolver option for your consumer contract financing needs.

These are just a few of the considerations and questions you as a business owner will want to be asking yourself in the initial phase of the funding process. Of course Access Funding Center, Inc. will start to help you to think through these and other questions relevant to your specific funding needs.

• Read Part 1

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