The Vendor Finance Association does not believe more regulation will serve the industry. The industry is already highly regulated – to the extent that it is restricting the flow of new investors into the industry and retarding competition and innovation. (We doubt that Henry Ford would be allowed to start a car company or Bill Gates a software company in Australia in the current climate.) More regulation will lead to higher costs which inevitably get passed on to the consumer and make purchasing their own home more difficult and costly than it already is.
We believe that better education and adoption of best practices around areas of concern is far more important and easily achievable for individual businesses and investors alike. This has been the focus of the Vendor Finance Association meetings for many years. The Vendor Finance Association believes that a few simple steps implemented can offer the consumer much greater protection along their path to purchasing their own home.
One of the more frequent questions that is brought up by buyers, as well as by consumer groups, concerns the management of the cash flow from the purchaser to the vendor and then to the underlying debt on the property – particularly where the property is owned by a joint venture partner. This is a valid and important consideration for all parties involved when they are setting up their instalment contracts and lease options.
The Vendor Finance Association strongly recommends that as a best practice for the protection of vendors, joint-venture partners and purchasers that:
Members use a licensed real estate agent or third-party management company (such as www.paid.net.au) to manage their transactions. This way the funds are collected by the third-party management company, the underlying loan is paid by the management company on your behalf (or behalf of your joint-venture partner), the rates and insurance are paid prior to any profits been distributed.
Use a service like Cash Collectors (www.cashcollectors.com.au) to collect the funds from the client. With cash collectors you can automate the payment of your loan directly from the console.
If using a management company is not for you, we recommended that you set up two direct debits from your client. The first direct debit goes to the underlying mortgage and the second direct debit can go to your transaction account for the payment of rates and insurances. This way as long as the purchaser is making their payment all parties involved will know that the underlying mortgage is being paid. If the loan on the property then falls behind it is because the purchaser has failed in their obligation and you can take action to remove them from the property and remedy the situation.
Management of cash flow in any business is a vitally important keystone of success. Unfortunately at times businesses suffer from cash flow crises and this leads to a “rob Peter to pay Paul” scenario. This is a highly dangerous and volatile practice and in a Vendor Finance business can lead to catastrophic consequences for the innocent victims – the Joint-Venture Partner and the Consumer.