Does ‘Rent-to-Own’ Work in Supply Chain?

When credit is tight, “rent-to-own” programs begin to proliferate, offering consumers everything from furniture to cars for a nominal monthly fee. Start-ups are also having a tough time securing credit, as both banks and potential vendors weigh the risk of backing fledgling businesses.

In the UK, British Telecom (BT) is launching a type of rent-to-own program in communications services. BT Business is allowing small businesses to lease both hardware and telecommunication services, according to a press release. The options include telephone systems, mobile systems, software, and IT equipment. The program is scalable, and companies can add services or hardware as they grow.

The UK has an average of 270,000 start-up businesses every year, according to BT. “In light of the current economic climate, we want to help these businesses access the products and services they need to get their new venture up and running,” Declan McGlone, general manager of BT Finance, said in the press release. “Our 'KickStart Scheme' offers finance over a fixed term, at a fixed rate, making it easier for customers to budget.”

I think this is a pretty neat idea. I know that equipment leasing has been an option in the electronics supply chain, particularly for manufacturing and test equipment. I'm not sure if those services are widely used, though.

The issue of credit in the supply chain ebbs and flows depending on the economy. One of the biggest sources of credit in the electronics channel is distribution. Since the channel is the first stop for many design and engineering companies, distributors have been extending credit pretty much since their inception. As both the industry and individual companies have grown, the amount of credit extended by the channel has increased considerably. Additionally, suppliers don't really want to deal with tracking payments from smaller accounts, and they have been happy to let their distributors handle that work.

Distributors don't make a cent on these services — they don't charge interest on credit that extends beyond 30, 60, or 90 days. This is a double-edged sword for the channel. Providing credit may secure them an account they normally wouldn't have, but if the account defaults, the distributor is out of luck. Distributors conduct extensive credit checks on potential customers. During the last recession, companies actually added staff in their credit facilities while laying off sales and support staff.

It looks like the industry is on the verge of another tough period. I don't think we'll see a lot of companies going out of business. I think the first recession already culled the weakest companies from the pack. But companies might want to look at more creative ways of doing business with small businesses and start-ups. Is rent-to-own an option for your business?

10 comments on “Does ‘Rent-to-Own’ Work in Supply Chain?

  1. Tim Votapka
    September 27, 2011

    Distributors never did particularly enjoy being a bank for their OEM customers, but that has been a fact of life in the channel. Rent to own though? Now that is an interesting concept and I wonder if bonded inventory is the place where this may start.

    September 28, 2011

    If suppliers are willing to bear the upfront cost of goods and “rent” them to their customers with a promise to offset the final purchase price with the amount of rent paid (or a major portion of it) I believe that will help companies continue to buy larger ticket items.  However this would have to be done without any contractual obligations so the customer can easily walk away at any time.

  3. saranyatil
    September 28, 2011

    Rent to own seems like a good concept. But i am just wondering how distribitors will be able to manage. What kind of legal documentation will going into this process?

  4. Jay_Bond
    September 28, 2011

    It would appear that the rent to own concept would work well for some companies. With very little capital needed upfront and the services able to be upgraded as the business grows, this should help the startup companies tremendously. It would be interesting to see what the rates and terms are and how easy it would be for a company to exit their agreement if they deem it necessary.

  5. Eldredge
    September 28, 2011

    This may be going back a long time, but in the early days of analog telephone, didn't Ma Bell 'rent' the telepohnes to consumers? This sounds like an old idea on a much grander scale….but if the business model works, that speaks volumes.

  6. elctrnx_lyf
    September 28, 2011

    yes, I agree with you. its nt really a new idea. they are doing it now only because there is no customers available directly to purchase the equipment. Barbara, I do not see any opportunities for this business model in the supply chain. What can be rented, is it some logistics or some software?

  7. Himanshugupta
    September 28, 2011

    Rent to own is for sure not a new idea and not even to electronic manufacturing. Small companies cannot bear the cost of buying all the equipments and would not want to buy with the bank loan due to the market uncertainties. But they could rent the equipments on a need basis. This helps both the owner and renter. 

  8. Taimoor Zubar
    September 28, 2011

    Rent-to-own for software is the other name for cloud services and it generally fits very well for companies. It relieves them of the upfront cost of software and businesses only have to pay on-the-go. I think this would also work very well in the supply chain industry.

  9. prabhakar_deosthali
    September 30, 2011

    “rent-to-own” models have worked very well in consumer durables and automobiles for many years now. In case of Electronics manufacturing and test equipment also this model may become successful if the service level agreemnets are properly drafted  regarding fixing of the purchase price at the end/termination of rental contract, service and spares during the rental period and replacement in case of total breakdown and downtine.

    The trend once set in may become industry norm soon and will save the new manufacturering set ups from big initial investments.

  10. _hm
    October 2, 2011

    Yes, this is good idea for current economic situation. However, they should also disclose the cost of ownership upfront. i.e. consumer should be educated and made aware that how much extra will he pay as compare to purchasing equipment / service upfront.


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