Legal Definitions - acceptance company

An acceptance company, also commonly known as a sales finance company, is a financial institution that specializes in purchasing installment sales contracts from retailers. When a consumer buys goods or services on credit from a merchant and agrees to pay over time, they sign a contract outlining the payment terms. Instead of collecting these payments themselves, the merchant can sell this contract to an acceptance company. The acceptance company then takes over the responsibility of collecting payments directly from the consumer, providing the merchant with immediate cash flow.

Here are some examples to illustrate how an acceptance company operates:

• Example 1: Car Dealership Financing

  Imagine Sarah purchases a new car from "Speedy Motors." Instead of paying the full price upfront, she signs an installment contract agreeing to make monthly payments over five years. Speedy Motors, rather than managing thousands of individual car loan accounts, sells Sarah's contract (along with many others) to "AutoLoan Solutions," an acceptance company. AutoLoan Solutions then becomes the entity that sends Sarah her monthly statements and collects her payments. This arrangement allows Speedy Motors to receive most of the car's price immediately and focus on selling more vehicles, while AutoLoan Solutions profits from the interest on Sarah's loan.

• Example 2: Furniture Store Credit

  The "Home Comfort Furniture" store offers customers a "buy now, pay later" option for large purchases, such as a complete living room set. A customer, Mark, chooses to finance his $3,000 purchase over 24 months. Home Comfort Furniture partners with "Retail Finance Partners," an acceptance company. After Mark signs his installment agreement with Home Comfort, the store sells that contract to Retail Finance Partners. Retail Finance Partners then becomes the entity Mark makes his monthly payments to, allowing Home Comfort to avoid the administrative burden of managing consumer credit accounts and receive prompt payment for their merchandise.

• Example 3: Appliance Retailer Payment Plans

  John needs a new refrigerator and purchases one from "Appliance World" using their in-store financing plan, agreeing to pay in 18 monthly installments. Appliance World regularly sells its customer installment contracts to "Consumer Credit Services," an acceptance company. Once John's contract is sold, Consumer Credit Services becomes the legal owner of the debt and the company that collects John's monthly payments. This arrangement provides Appliance World with immediate funds from the sale, rather than waiting 18 months for full payment, enabling them to reinvest in new inventory.