Retail Finance

Q: I am currently operating the ACT / ActSmart scheme via Black Horse, what will the impact be upon my business following their announcement?

A:

Black Horse has assured us that for all businesses operating within the ACT / ActSmart scheme it will be business as usual until 26th February 2010, after which they will no longer be able to accept new applications for retail finance to consumers.

A large number of businesses in a variety of markets will lose access to the facility early in the New Year, but one of many benefits in being part of the ActSmart scheme is continuity, allowing us to put a replacement scheme in place from the end of February. 

Q: Why did Lloyds decide to pull out of this market?

A:

The decision was the result of a "detailed strategic review" of the business, which concluded that Retail Finance Point of Sale was "no longer integral to their business model".

Banks may not be flavour of the year but, as with so many of their retail offerings, the margins are slim and sometimes non-existent, add to that the growing credit risk of retail finance in the current economy and lack of prioritorisation for this area of the business and it becomes more understandable.

Q: I want to join the scheme in order to offer retail finance, how long will I have to wait?

A: New applicants will be able to join the new scheme along with all of those transferring. However, you need to ensure that you have your consumer credit licence in place first and this can take 3 - 4 weeks.

Q: Do I need a consumer credit licence before applying to Moneyway?

A: Yes. Retail Finance providers will not be able to accept finance applications without evidence that you have a current consumer credit licence.

Q: How do I get a consumer credit licence?

A:

Consumer credit licences are available from the Office of Fair Trading and generally take approximately 3 - 4 weeks to be issued.  They last for 5 years and the current fees are:

• Sole Trader - £480.00 (£330 licence fee + £150 CCJ levy)
• Ltd Co / Partnership - £970.00 (£820 licence fee + £150 CCJ levy)

The cost of a licence was changed in May 2009 and the CCJ levy was added at this time. 

Q: My business is less than 2 years old and has been refused retail finance by other companies. Is the ActSmart scheme more flexible?

A:

Moneyway will consider applications from businesses less than 2 years old who are able to provide the following information:

• Cash flow forecast
• Opening Statement
  
• Copy of your business plan

Q: I think I should be doing more business via the scheme, what am I doing wrong?

A:

The most important issue here is whether it is evident to your customers, are you promoting retail finance in your shop as strongly as you are your products?

The retailers that do the most business via finance promote it powerfully to their customers. It's incorporated into window and bicycle displays with point of sale evident throughout the shop and, where applicable, on websites. Staff are briefed about promoting it as part of the sales process, using it to up-sell.

Interest free credit in particular, is a strong, established sales tool and it can get people through the door in the first place and is fundamental to many high ticket retail businesses, a marketing tool in its own right. Keeping a finance pad under the till, with no marketing presence in store clearly isn't going to create volume sales.

Q: I am worried about the cost of finance eating into my margin?

A:

Retail Finance has a proven track record of increasing the average sales price of a transaction, not just in the cycle trade, but throughout high ticket retail in the UK. By increasing the size of the sale you can fund the subsidy and still make more £'s profit; that's the reason why retail finance is core to industries such as furniture and is now in such demand within the cycle trade. 

Q: Why are there so many different finance product offerings within the scheme?

A:

The width of product offering allows retailers to accommodate regional demands and flex their offering within the shop. Some retailers run nearly their whole promotional programme using the ActSmart retail finance scheme, tiering terms by price points to assist sell-up.

It is worth bearing in mind that over 95% of the business - by value - done on the scheme is via interest free at an average sales value of c£1035. However, this is in part because retailers aren't as creative as they could be in using the terms on offer to them. Take note of what your local competitors are offering and not just cycle retailers, look at other high ticket retailers and use the armoury of terms available to develop your own promotion, increasing your competitiveness.

Q: The initial investment in a consumer credit licence appears costly?

A:

The pricing structure was reviewed in May 2009, but a licence still lasts for 5 years, therefore the annual cost is only the equivalent of £194 p.a. for a Limited Company or Partnership and less than £100 p.a. for a Sole Trader. These costs apply per business irrespective of the number of outlets you have and there are no other investments required to commence using Retail Finance as a sales tool for your business.

The cost of a CCL is easily covered by the increased sales revenue and much higher average transaction value that retail finance sales generate.