Legal Definitions - sales finance company

A sales finance company is a financial institution that specializes in purchasing installment sales contracts or accounts receivable from retailers and other businesses. When a customer buys goods or services on credit from a merchant, the merchant might not want to manage the collection of payments over time. Instead, the merchant can sell the customer's credit agreement (often called an "installment contract" or "promissory note") to a sales finance company. This allows the merchant to receive immediate cash for the sale, while the sales finance company takes on the responsibility and risk of collecting payments directly from the customer.

• Example 1: Car Dealership
  Imagine a customer purchases a new car from "Speedy Motors" and agrees to pay for it over five years. Instead of Speedy Motors collecting monthly payments for five years, they immediately sell the customer's financing agreement to "AutoCredit Solutions," a sales finance company. Speedy Motors receives the full payment for the car right away, and the customer then makes their monthly car payments directly to AutoCredit Solutions. This illustrates a sales finance company because AutoCredit Solutions bought the credit contract generated from the sale of the car.

• Example 2: Furniture Store
  A family buys a new living room set from "Comfort Home Furnishings" on an installment plan, agreeing to make payments over two years. Comfort Home Furnishings, preferring to focus on selling furniture rather than managing long-term credit accounts, sells this installment contract to "Consumer Finance Group." Comfort Home Furnishings gets its money quickly, and the family makes their subsequent payments to Consumer Finance Group. Here, Consumer Finance Group acts as a sales finance company by acquiring the credit agreement from the furniture sale.

• Example 3: Home Improvement Contractor
  A homeowner hires "Everlast Windows" to install new windows and finances the project over three years. Everlast Windows, a contractor, sells the homeowner's financing agreement to "Property Improvement Lenders." This allows Everlast Windows to receive payment for their work promptly, without waiting for three years of installment payments. The homeowner then makes their monthly payments to Property Improvement Lenders. Property Improvement Lenders is functioning as a sales finance company by purchasing the credit contract tied to the home improvement service and product sale.