Finance the way forward

Whether we’re buying a car, fridge freezer, TV or even a house, flexible finance is an integral way of helping us stretch our personal purchasing power.

In the business world, finance options such as hire purchase, loans and rental are common across many industries. Yet the IT sector steadfastly remains as one of the last bastions of the capital purchase – and this is increasingly at odds with the way companies want to pay for technology.

For many businesses, especially smaller firms, managing cashflow and limited IT budgets effectively is challenging. So asking them to pay upfront to own an asset that will quickly depreciate and eventually be written-off as a legacy item inevitably results in deals being left on the table.

Businesses would much rather spread the cost into monthly payments that they can more easily afford over a period that’s convenient to them. Financing IT in this way can help increase purchasing power fivefold.

So why has the IT community been so slow to offer flexible finance at the point of sale?

Part of the inertia is cultural, with an ingrained adherence to the traditional licensing model for software and an aversion to hardware rental.

But the biggest reason is the cost of using brokers who often take a commission of 10-20 per cent of the total amount of finance. Very few technology vendors and resellers can afford to take such a significant hit on their margins.

The alternative is to create and manage a network of third-party finance providers – but the cost and complexity often proves prohibitive. Customers demand transparency, which means resellers have to demonstrate that their network is big and wide enough to deliver the best deal possible. To do that effectively means recruiting specialist skills and investing in non-core resource.

The opportunity created by this finance challenge, however, is driving the emergence of online marketplaces that cut out the broker middleman by bringing resellers and IT finance providers directly together. These transactional sites enable resellers to enter customer and sales details and find the best deals available against the pre-determined loan criteria set by finance providers. Although the underlying matching technology and processes might be complex, these sites are simple to use and can turn around results in minutes.

Resellers will be able to build finance into the point of sale, making purchases more affordable for more customers. Software firms who trade via application exchanges will be able to build in rental finance as part of their offering and realise full payment upfront, allowing them to enhance cashflow and re-invest in accelerating growth.

Software-as-a-service providers will be able to provide Finance-as-a-service, and on-demand technology will be paid for through on-demand finance. Early adopters of flexible finance will gain more traction in the market, using it as a competitive differentiator and a tool to close more sales. And this will help accelerate the demise of the capital purchase.

After all, every company rents or leases its photocopier, so why not the server and the ERP system as well?