Please lease me
We look at why the channel may turn to financing in a big way this year
With both public and private organisations facing straitened investment budgets this year, and high street banks more jittery than ever about lending, could 2012 be the year that leasing and financing emerges as one the biggest weapons of channel sales teams?
In the 12 months to June 2011, UK asset finance providers funded almost £1.1bn of investment in IT kit, according to figures from the Finance and Leasing Association. Research from IBISWorld estimates that the UK market for rented or leased PCs and tablets is worth £200m per year.
These numbers may sound impressive, but a survey from Key Note finds that the entire UK PC market was worth almost £13bn in 2010. The market for leasing
may be big, but it clearly has plenty of room to grow.
BNP Paribas Leasing Technology Solutions works across three areas: IT; telecommunications; and office equipment, which covers, among other things, the printer and copier markets.
Martin Ardern, director at the telecoms division, claimed his firm wants to increase its engagement with VARs in the IT and telecoms sector where "use of finance is relatively low".
"In the office equipment business, finance is used as part of the sales process. In other markets, such as IT and telco, penetration is much lower. That restriction is usually at the salesperson level," he said.
"The resellers that embrace it do really well and have it as an integral part of the sale. Then there are a bunch of resellers that have not embraced it as part of the sale. There is a [lack of] awareness aspect to it as to what the benefits are."
BNP Paribas hopes to make a much bigger splash in the IT channel this year, and Ardern outlined how working more collaboratively with resellers and giving as much attention to software as it does hardware will allow the firm to make inroads.
"We want to be able to work with [resellers] to understand their businesses. Traditionally, too many finance companies and banks have wanted to put their services and products in place separately, rather than integrate them. We try to work closely with [resellers]," he said.
"There is a requirement to be able to do the hardware bit but also the software applications and the soft costs. Things such as training and data transfer costs are included at the start of our agreements. We have taken a market-leading stance in terms of software."
Equanet is one reseller that is getting into financing and leasing in a big way this year, and it recently announced it has teamed up with CIT Global Vendor Finance. Ian Duffield, head of legal and finance operations, agreed that some sales teams and the channel firms they work for have traditionally been a little wary of the financing arena.
But the Dixons-owned VAR is endeavouring to make sure its salespeople are incorporating financing into their efforts.
"Historically, there have been some challenges [with leasing in the channel]," said Duffield. "Fundamentally, this is because the sales team has not understood the leasing option, [thinking]: ‘that's something weird to do with finance, isn't it?'.
"We have now put a huge amount of focus on it and it forms part of our sales review process, which is delivered first thing every Monday morning. It is about creating visibility and awareness."
Valuable solution
Steve Nicholls (pictured), sales director at VAR CSA Waverley, said that, in the current economic climate, it is imperative that resellers and end users consider leasing "as a practical and available IT procurement solution". He claimed that leasing can allow companies to get a better handle on their cashflow and budgeting.
"Opting for an operating lease enables organisations to continue benefiting from new IT systems, without having to use capital expenditure to fund this," he explained. "It also ensures best practice budgeting and reduction of net debt. Liberating more cash into the operation means it can be managed properly and deployed where it has the best impact on core activities."
Education-focused system builder Stone decided in 2009 to move its financing operations in-house.
Chief executive James Bird said: "We made the decision to ensure all customers get the correct advice for the supplier, not the finance company, as to what agreement they are entering into. We take the duty of care to our customers seriously and have invested significantly in resources so that no customer who decides to go down the finance route finds themselves in a compromising position going forward and has full transparency of what is expected of them throughout the terms of the agreement."
Research commissioned by Stone in December found that, prior to the education spending cuts, more than 60 per cent of many schools' ICT budget had already been spent on maintenance. Consequently, many are considering leasing, rental schemes and parental contribution programmes, said Bird.
But the Stone boss advised schools to exercise caution when selecting a financing package and provider.
"There are plenty of trusted and highly capable resellers of ICT in the market. However, schools need to be cautious of third-party salesmen who make promises they cannot deliver," said Bird. "If schools are looking for a way to access alternative funds, but are unsure of how to proceed, they need to seek out references from their chosen supplier. If they are still unsure, they can
seek advice from their local education authority to be sure that their chosen supplier is reputable."
Financing options
Leasing and financing deals may historically have been seen as options that apply primarily to the SMB space, where capex budgets are smaller and big tech refreshes harder to justify.
But Dave Ellis, director of new technology and services at distributor Computerlinks, argued that the economic pressures of the current climate are causing bigger enterprises - and the VARs that serve them - to lean on financing options in a much bigger way.
"I think leasing has traditionally been more prevalent with SMBs but that is changing in the tough economic climate," he said. "Several large enterprise resellers are using this approach very successfully for hardware, software and services.
"There seem to be opportunities across most market segments. All are facing pressures in this current economic climate, and find financing as a way to help budget and manage cashflow more effectively."
Kevin Cook, head of finance at Equanet, agreed that the sky is the limit for his firm.
He said: "Leasing can be attractive to SMBs, but we are not restricting our ambitions in terms of the size of leasing deals we are looking at. I do not see a ceiling."