Category Archives: Uncategorized

Truck Financing Options Have Tightened Requiring Credit Strategy

Conventional truck financing poses serious challenges because of the economic conditions that face banks and independent truck operators. Diesel fuel has reached record highs of $4.50 or more, and the cost affects truck profitability more directly than any other expense. The rise of food prices destabilizes the market further, and industry-wide defaults have made bankers more skeptical about truck financing. The Kenworth brand, manufacturers of popular industrial trucks, has restricted internal financing approvals even more tightly than the lending market at large. Kenworth financing proved difficult to obtain at the best of times, and deteriorating market conditions now make the task nearly impossible. Kenworth has pulled funds and imposed substantial down payments of 10-30 percent.

Long-haul trucks face the strictest financing qualifications. Startup businesses must provide significant down payments and enjoy excellent credit to qualify. Established trucking companies without sterling credit might need to produce 10-20 percent down. Trucking entrepreneurs can maximize their chances of approval from any lender by finding the best deal possible. Repossessions, auctions, off-lease trucks, and private sellers can generate substantial risk/reward benefits that might make a deal more attractive to lenders. Truckers can suffer credit denials from numerous conditions such as slow payments, tax problems, keeping poor financial records, or getting poor FICO scores, which analyze overall credit worthiness.

Poor credit need not disqualify owners from financing options. Leveraging business or personal collateral can guarantee the sale and leads to loan approvals. The extra collateral allows lenders to bypass credit score criteria in the decision-making process. Heavy equipment, fully owned trucks, commercial and/or residential real estate, and co-signers can facilitate approvals. Outright equipment collateral can lead to fast approvals within a week. Real estate might take longer, often requiring two weeks or more to clear titles. Lease/purchase programs generate tax benefits, and the method might lead to quicker acceptance.

Regardless of what method truckers choose, they should obtain sufficient insurance coverage to protect their assets and livelihood. Full purchase-price coverage can offer peace of mind, and accident and health insurance will indemnify truckers for circumstances beyond their control. Credit life insurance, physical damage coverage, and other alternatives provide complete protection against all possibilities. Repossessions and off leases make trucks available at favorable terms for first-time buyers or established owners seeking to expand operations, including strict loans from the internal Kenworth financing department. Truck financing opportunities exist for those people willing to shop carefully and exploit all their options.

Fire Truck Financing – Your Banker Should Not Be Asking You This!

The following 10 questions are sure signs that your banker is inexperienced in the unique business of financing fire trucks. Don’t get caught accepting these typical banker mistakes because they will cost you thousands of hidden dollars.

Question #1: Are volunteer fire departments eligible for tax-exempt financing? We’ll need your local government to borrow the money instead of you.

Answer: Yes. The IRS code designates volunteer fire departments as “qualified” tax-exempt borrowers just like cities, townships, counties, villages, towns, and states. Bankers who don’t specialize in tax-exempt financing won’t know that volunteer fire departments can and do borrow tax-exempt. Don’t accept this requirement from the bank unless you want the local government to borrow the money.

Also, your interest rate should not be any higher than your local government. Volunteer fire departments are treated exactly the same and there is no premium to be paid.

Question #2: We can’t finance a truck longer than 5 (or some other low number) years. What short term would you like?

Answer: Common fire truck financing is for terms of up to 15 years. A fire truck is a major purchase with a long life cycle. It makes sense to finance this major purchase with the expected useful life and your budget in mind. Don’t get caught financing a long lived asset with short term financing (unless you want).

Question #3: We only offer a variable rate or only fix the rate for 3 or 5 years. Is that acceptable?

Answer: No. Most fire trucks are financed on fixed rates. Fire departments should not be in business of accepting interest rate risk or hedging interest rate futures. When a bank tells you that they won’t provide a long term fixed rate, find another bank who understands how fire truck financing is handled in the U.S.

Question #4: We only offer monthly payments and they begin right now. Is that OK?

Answer: No. Fire trucks can be financed with several types of payments such as monthly, quarterly, semi-annually, or even once a year. Payments should be based on when you receive your revenues, not based on some arbitrary calendar item such as one month after the loan or one year from delivery. Your payments should match when you receive your money in your budget, not anything else. A banker who is experienced with financing fire trucks will know this and schedule your payments accordingly.

Question #5: The truck can not be delivered until 6 (or some other number of) months. Will your truck deliver before that?

Answer: Knowledgeable bankers will not impose any sanctions on when your truck can deliver. They understand that you need your truck when you need your truck.

Question #6: Are you aware that financing your new truck is always a good deal? That way you keep your savings high.

Answer: Not necessarily. Each department’s situation is different and should be examined by its own goals, situation, and future prospects. Having a large savings account for no purpose and borrowing money is ALWAYS a more expensive method of paying for trucks. No matter what return you think you’re earning on your investments. If you’re consistently earning more on your investments than the loan interest rate, you are taking on a lot of financial risk.

Question #7: Does our rate look the lowest to you?

Answer: Not without some examination. There are several different ways of presenting a “legal” interest rate. Some methods of calculating interest can appear the same but, in fact, be as much as 1/4% higher. Also, by focusing on only the interest rate, you miss the other 6 Factors that control how much total interest you pay. Don’t stop your review at the stated interest rate, there is much more to complex financing than that.

Question #8: We’d like to give you a loan instead of leasing your new fire truck. Is that OK?

Answer: Maybe. Leasing a fire truck is far different than the typical leasing that comes to mind ( think auto leases where you use the car for a period of time and then give it back as long as the miles are low). Fire truck leasing is designed by the tax laws for you to own the vehicle and you will get a lower tax-exempt interest rate because it is structured correctly. There are specific state laws about getting a loan – you might have to get voter approval or some other type of authorization for the loan to be legal. By leasing, in 48 states, you do not have to get outside approval because the way a tax-exempt lease is structured.

Question #9: You are a volunteer fire department, we will need some personal guaranties. Who is guaranteeing this lease?

Answer: Nobody. Reputable and knowledgeable fire truck financing companies understand the nature of volunteer fire departments. They can assess the department only and won’t require anyone to personally be responsible to repay the lease.

Question #10: Who do I send the bill for our attorney and our closing costs to?

Answer: Keep them. A knowledgeable bank will not need to get their attorney involved. They should do enough of these type of transactions to have the paperwork ready without the added costs of their attorney preparing it each time. Also, you should not have to pay any closing costs. You should only be liable to pay for the payments, period.

When you hear any or all of these questions, it’s very likely you are trusting a major financial decision with someone who is inexperienced. You will probably pay much more costs and have a lot more hassle. Don’t accept any of these questions for your department. Find a reputable and knowledgeable bank to help you with the biggest financial decision you’re department will ever make.

Best in Class Finance Functions For Police Forces

Background

Police funding has risen by £4.8 billion and 77 per cent (39 per cent in real terms) since 1997. However the days where forces have enjoyed such levels of funding are over.

Chief Constables and senior management recognize that the annual cycle of looking for efficiencies year-on-year is not sustainable, and will not address the cash shortfall in years to come.
Facing slower funding growth and real cash deficits in their budgets, the Police Service must adopt innovative strategies which generate the productivity and efficiency gains needed to deliver high quality policing to the public.

The step-change in performance required to meet this challenge will only be achieved if the police service fully embraces effective resource management and makes efficient and productive use of its technology, partnerships and people.

The finance function has an essential role to play in addressing these challenges and supporting Forces’ objectives economically and efficiently.

Challenge

Police Forces tend to nurture a divisional and departmental culture rather than a corporate one, with individual procurement activities that do not exploit economies of scale. This is in part the result of over a decade of devolving functions from the center to the.divisions.

In order to reduce costs, improve efficiency and mitigate against the threat of “top down” mandatory, centrally-driven initiatives, Police Forces need to set up a corporate back office and induce behavioral change. This change must involve compliance with a corporate culture rather than a series of silos running through the organization.

Developing a Best in Class Finance Function

Traditionally finance functions within Police Forces have focused on transactional processing with only limited support for management information and business decision support. With a renewed focus on efficiencies, there is now a pressing need for finance departments to transform in order to add greater value to the force but with minimal costs.

1) Aligning to Force Strategy

As Police Forces need finance to function, it is imperative that finance and operations are closely aligned. This collaboration can be very powerful and help deliver significant improvements to a Force, but in order to achieve this model, there are many barriers to overcome. Finance Directors must look at whether their Force is ready for this collaboration, but more importantly, they must consider whether the Force itself can survive without it.

Finance requires a clear vision that centers around its role as a balanced business partner. However to achieve this vision a huge effort is required from the bottom up to understand the significant complexity in underlying systems and processes and to devise a way forward that can work for that particular organization.

The success of any change management program is dependent on its execution. Change is difficult and costly to execute correctly, and often, Police Forces lack the relevant experience to achieve such change. Although finance directors are required to hold appropriate professional qualifications (as opposed to being former police officers as was the case a few years ago) many have progressed within the Public Sector with limited opportunities for learning from and interaction with best in class methodologies. In addition cultural issues around self-preservation can present barriers to change.

Whilst it is relatively easy to get the message of finance transformation across, securing commitment to embark on bold change can be tough. Business cases often lack the quality required to drive through change and even where they are of exceptional quality senior police officers often lack the commercial awareness to trust them.

2) Supporting Force Decisions

Many Finance Directors are keen to develop their finance functions. The challenge they face is convincing the rest of the Force that the finance function can add value – by devoting more time and effort to financial analysis and providing senior management with the tools to understand the financial implications of major strategic decisions.

Maintaining Financial Controls and Managing Risk

Sarbanes Oxley, International Financial Reporting Standards (IFRS), Basel II and Individual Capital Assessments (ICA) have all put financial controls and reporting under the spotlight in the private sector. This in turn is increasing the spotlight on financial controls in the public sector.

A ‘Best in Class’ Police Force finance function will not just have the minimum controls to meet the regulatory requirements but will evaluate how the legislation and regulations that the finance function are required to comply with, can be leveraged to provide value to the organization. Providing strategic information that will enable the force to meet its objectives is a key task for a leading finance function.

3) Value to the Force

The drive for development over the last decade or so, has moved decision making to the Divisions and has led to an increase in costs in the finance function. Through utilizing a number of initiatives in a program of transformation, a Force can leverage up to 40% of savings on the cost of finance together with improving the responsiveness of finance teams and the quality of financial information. These initiatives include:

Centralization

By centralizing the finance function, a Police Force can create centers of excellence where industry best practice can be developed and shared. This will not only re-empower the department, creating greater independence and objectivity in assessing projects and performance, but also lead to more consistent management information and a higher degree of control. A Police Force can also develop a business partner group to act as strategic liaisons to departments and divisions. The business partners would, for example, advise on how the departmental and divisional commanders can meet the budget in future months instead of merely advising that the budget has been missed for the previous month.

With the mundane number crunching being performed in a shared service center, finance professionals will find they now have time to act as business partners to divisions and departments and focus on the strategic issues.

The cultural impact on the departments and divisional commanders should not be underestimated. Commanders will be concerned that:

o Their budgets will be centralized
o Workloads would increase
o There will be limited access to finance individuals
o There will not be on site support

However, if the centralized shared service center is designed appropriately none of the above should apply. In fact from centralization under a best practice model, leaders should accrue the following benefits:

o Strategic advice provided by business partners
o Increased flexibility
o Improved management information
o Faster transactions
o Reduced number of unresolved queries
o Greater clarity on service and cost of provision
o Forum for finance to be strategically aligned to the needs of the Force

A Force that moves from a de-centralized to a centralized system should try and ensure that the finance function does not lose touch with the Chief Constable and Divisional Commanders. Forces need to have a robust business case for finance transformation combined with a governance structure that spans operational, tactical and strategic requirements. There is a risk that potential benefits of implementing such a change may not be realized if the program is not carefully managed. Investment is needed to create a successful centralized finance function. Typically the future potential benefits of greater visibility and control, consistent processes, standardized management information, economies of scale, long-term cost savings and an empowered group of proud finance professionals, should outweigh those initial costs.

To reduce the commercial, operational and capability risks, the finance functions can be completely outsourced or partially outsourced to third parties. This will provide guaranteed cost benefits and may provide the opportunity to leverage relationships with vendors that provide best practice processes.

Process Efficiencies

Typically for Police Forces the focus on development has developed a silo based culture with disparate processes. As a result significant opportunities exist for standardization and simplification of processes which provide scalability, reduce manual effort and deliver business benefit. From simply rationalizing processes, a force can typically accrue a 40% reduction in the number of processes. An example of this is the use of electronic bank statements instead of using the manual bank statement for bank reconciliation and accounts receivable processes. This would save considerable effort that is involved in analyzing the data, moving the data onto different spreadsheet and inputting the data into the financial systems.

Organizations that possess a silo operating model tend to have significant inefficiencies and duplication in their processes, for example in HR and Payroll. This is largely due to the teams involved meeting their own goals but not aligning to the corporate objectives of an organization. Police Forces have a number of independent teams that are reliant on one another for data with finance in departments, divisions and headquarters sending and receiving information from each other as well as from the rest of the Force. The silo model leads to ineffective data being received by the teams that then have to carry out additional work to obtain the information required.

Whilst the argument for development has been well made in the context of moving decision making closer to operational service delivery, the added cost in terms of resources, duplication and misaligned processes has rarely featured in the debate. In the current financial climate these costs need to be recognized.

Culture

Within transactional processes, a leading finance function will set up targets for staff members on a daily basis. This target setting is an element of the metric based culture that leading finance functions develop. If the appropriate metrics of productivity and quality are applied and when these targets are challenging but not impossible, this is proven to result in improvements to productivity and quality.

A ‘Best in Class’ finance function in Police Forces will have a service focused culture, with the primary objectives of providing a high level of satisfaction for its customers (departments, divisions, employees & suppliers). A ‘Best in Class’ finance function will measure customer satisfaction on a timely basis through a metric based approach. This will be combined with a team wide focus on process improvement, with process owners, that will not necessarily be the team leads, owning force-wide improvement to each of the finance processes.

Organizational Improvements

Organizational structures within Police Forces are typically made up of supervisors leading teams of one to four team members. Through centralizing and consolidating the finance function, an opportunity exists to increase the span of control to best practice levels of 6 to 8 team members to one team lead / supervisor. By adjusting the organizational structure and increasing the span of control, Police Forces can accrue significant cashable benefit from a reduction in the number of team leads and team leads can accrue better management experience from managing larger teams.

Technology Enabled Improvements

There are a significant number of technology improvements that a Police Force could implement to help develop a ‘Best in Class’ finance function.

These include:

A) Scanning and workflow

Through adopting a scanning and workflow solution to replace manual processes, improved visibility, transparency and efficiencies can be reaped.

B) Call logging, tracking and workflow tool

Police Forces generally have a number of individuals responding to internal and supplier queries. These queries are neither logged nor tracked. The consequence of this is dual:

o Queries consume considerable effort within a particular finance team. There is a high risk of duplicated effort from the lack of logging of queries. For example, a query could be responded to for 30 minutes by person A in the finance team. Due to this query not being logged, if the individual that raised the query called up again and spoke to a different person then just for one additional question, this could take up to 20 minutes to ensure that the background was appropriately explained.

o Queries can have numerous interfaces with the business. An unresolved query can be responded against by up to four separate teams with considerable delay in providing a clear answer for the supplier.

The implementation of a call logging, tracking and workflow tool to document, measure and close internal and supplier queries combined with the set up of a central queries team, would significantly reduce the effort involved in responding to queries within the finance departments and divisions, as well as within the actual divisions and departments, and procurement.

C) Database solution

Throughout finance departments there are a significant number of spreadsheets utilized prior to input into the financial system. There is a tendency to transfer information manually from one spreadsheet to another to meet the needs of different teams.

Replacing the spreadsheets with a database solution would rationalize the number of inputs and lead to effort savings for the front line Police Officers as well as Police Staff.

D) Customize reports

In obtaining management information from the financial systems, police staff run a series of reports, import these into excel, use lookups to match the data and implement pivots to illustrate the data as required. There is significant manual effort that is involved in carrying out this work. Through customizing reports the outputs from the financial system can be set up to provide the data in the formats required through the click of a button. This would have the benefit of reduced effort and improved motivation for team members that previously carried out these mundane tasks.

In designing, procuring and implementing new technology enabling tools, a Police Force will face a number of challenges including investment approval; IT capacity; capability; and procurement.

These challenges can be mitigated through partnering with a third party service company with whom the investment can be shared, the skills can be provided and the procurement cycle can be minimized.

Conclusion

It is clear that cultural, process and technology change is required if police forces are to deliver both sustainable efficiencies and high quality services. In an environment where for the first time forces face real cash deficits and face having to reduce police officer and support staff numbers whilst maintaining current performance levels the current finance delivery models requires new thinking.

While there a number of barriers to be overcome in achieving a best in class finance function, it won’t be long before such a decision becomes mandatory. Those who are ahead of the curve will inevitably find themselves in a stronger position.

Fire Truck Financing – How to Write a Request For Proposal

Most fire departments don’t know that their request for fire truck financing proposals actually set themselves up to receive less bidders, create more confusion for themselves, and get worse financing terms. This article will help guide your fire department to set up a successful RFP process.

First, the RFP is not the time to shop for knowledge.

Too often, fire departments send out RFP requests without knowing what they exactly want. So, they effectively use RFP process to shop for information about lenders’ offerings. In other words, your fire department sends our RFP that asks for some very basic terms such as interest rate for a 10 year loan. Your department decided on a 10 year loan because of a general feeling that should be the term. The lenders reply and offer only the interest rate. This is the first step where you start getting a bad deal.

Here’s why. There are 7 factors that control how much you pay when borrowing money. When you send out a RFP based on the basic information above, you are opening yourself to those lenders who understand that they can present a low rate but overcharge you on the other 6 factors. Often, this low rate is calculated on an alternative interest rate formula which, although legal, is inconsistent with the most popular method of calculating rate. You won’t even know that you are being overcharged until after you sign the contract.

Second, determine what you really want.

If you don’t have the department resource who truly understands fire truck financing, find a trustworthy and knowledgeable person who can help you understand exactly what financing terms you want. This person should not be someone who will be bidding later so you have an objective source of help. They should help you set a general payment budget, what terms or restrictions you are willing to undertake, and financing term. By using this information, you will then be able to use the RFP process for its correct use – getting the best deal – rather than fact finding current financing options.

Your bid will be concise and provide a fair opportunity for lenders to present their best options. When lenders see a general RFP, they know that there are sharks who play bidding games. So, they don’t bid and your department ends up with fewer bidders and higher overall borrowing costs.

Finally, specifically ask for the right financing terms.

When you ask for the right information in the RFP, all lenders know you have set up a level playing field that they have a chance to win. So, more lenders respond to your RFP. And they work harder because they feel they have a fair chance to win. You’ll get overall better proposals.

There are 7 specific items you want your bidders to include in their proposal. When you ask for these 7 items, you will get more proposals, and better proposals, and you will also get information that is presented uniformly. That means you will have a far easier job in comparing the proposals since they will be “apple to apple”. Otherwise, you will end up with a wide variety of proposals that seem to have no relation to each other. Your job in comparing them will be harder, you will miss key cost factors, and you’ll be more susceptible to the game players and less likely to know what the best proposal is.

The 7 factors are:

How much you want to borrow
How many years you want to pay back the loan.
The date of your first payment (specify a date)
How frequently you want to make payments (monthly, annually, etc.)
Details of any fees or costs at any time during the financing term (this means not just “origination fees” or costs which are charged at the beginning but any fee or cost whatsoever such as prepayment fees or lien release fees or balance verification fees, etc.)
Interest rate and how it is calculated and how long the rate is fixed
Payout details (the bank must verify that they will pay your vendors according to the contract). Otherwise you may incur extra fees from your vendor because they can’t pass along a chassis discount, for example. This is a hidden way you will pay more for your financing choice even though your lender is not charging the fee.
In summary.
The key to any successful RFP process is to know what you want. Just as you didn’t send out RFP’s for a “fire truck” without any specifications about chassis, engine, transmission, or pump, you shouldn’t send a RFP for financing proposals without specifying the exact terms you want. Explore the options before you bid and with someone you trust and is knowledgeable. Require specific information that your lender has to put in writing upfront so that you create a fair proposal environment, get more interested bidders, and get a easily comparable set of proposals to choose from.