While studies show that technology spending is once again on the rise, there’s a reason you haven’t heard a collective sigh of relief from the software industry. While many budgets are once again allowing for the purchase of enterprise software, hardware and peripherals, there’s no question that today’s purchasers are smarter, savvier, and more selective than ever.
Even though the purse strings have loosened, competition is at an all-time high. It’s no longer enough to provide a software solution that meets the potential customer’s needs or even provide it at the best price. Today, smart vendors are constantly looking for ways to stay one step ahead of the competition.
While increasing sales is always part of a competitive business strategy, software development companies often overlook a simple method of accomplishing this objective – making it easier for customers to buy.
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One option increasing in popularity among software vendors is establishing a customized finance program that provides no-hassle financing solutions for your prospective clients. In addition to “one-stop shopping,” your customers can reap the other benefits of financing that make it easier for them to commit to technology purchases, including:
100 percent financing — Many finance companies offer 100 percent financing for the cost of software and maintenance contracts, which requires no down payment. Because customers don’t have to come up with a down payment, they can make a purchase immediately rather than hold up the sale with a “wait and see” mentality that often accompanies a dip into cash reserves. It also allows your customers to invest more capital in revenue-generating activities.
Improved cash flow management – With software financing, your customers can conserve capital for reinvesting in their business and improve budgeting accuracy through fixed monthly payments. Financing also makes it easy for customers to access multiple-year budgets by paying for the benefit of your software over its useful life.
Flexible payment structures – Customers can optimize project budgets by taking advantage of the flexible payment structures available through financing to maximize the return on their investment. For example, with software financing, customers can ramp up payments to match the revenue generation of a new technology project utilizing the software being financed.
While financing provides a clear advantage for the buyer, the list of advantages for software developers, distributors, and resellers can be even more beneficial when a program is well planned.
Improved Customer Relations
As noted above, financing packages add value for the customer by enhancing their buying power, offering greater flexibility, and providing convenience. It also increases their satisfaction through the ability to leverage their budget to acquire the total technology solution – which could include software, hardware, service, support, integration, and training – rather than only the parts and pieces they could afford through an outright purchase.
Shorter Sales Cycles
On the sales side, any customer interested in a product seems like a good lead. However, there are many times when the question of how to pay for the new software prevents the sale. Time lost on dead-end deals can be eliminated when financing is part of the sale, as the ability to pay is immediately considered in the equation. In addition, many finance companies now offer fast, easy credit and documentation processes, so you can complete a sale quickly and avoid costly processing delays.
Another benefit is that as software needs are discussed in the sales process, the finance specialist can work with the chief financial officer or accountant to determine which financing option and payment plan best suit business needs and cash flow.
Direct customer financing can save software vendors millions of dollars each year by reducing the number of days a sale is outstanding. Consider a company with quarterly cash sales of $50 million. On average, it can take 45 days to collect payment. Assuming a borrowing rate of 6 percent, the 45-day lag in payment results in a carrying cost of $371,204. If the same numbers are run with a leasing finance program that generates payment within 2 days, the carrying cost drops $82,253, saving the company more than $288,951 in one business quarter.
The Big Picture
- Overall, equipment financing programs can:
- Generate larger, more profitable sales faster;
- Increase account control;
- Improve sales efficiency and productivity;
- Lower days-sales-outstanding;
- Improve cash flow;
- Differentiate your company from its competition; and
- Provide complete solutions for your customers.
- Taking the Next Step
After identifying an interest in offering flexible financing as part of the sales process, the next step is to develop a finance program. By partnering with an experienced leasing company to develop a finance program for your customers, you can transfer all of the uncertainties of extending terms to your customer to the finance company.
Partnering with an experienced finance company also means you can concentrate on what your company does best – developing software – while letting a finance expert handle the intricacies of a finance program. Put, by working with a third party, your company will receive all benefits with no risk.
Whether you refer your clients directly to your financing program partner or work with a third-party finance partner to develop an in-house program, it is essential to choose an experienced equipment finance partner. During the sales process, the finance expert will be working closely with your customers. Their actions and service levels must reflect your company’s ability to meet your customers’ expectations. When searching for a finance partner, look for a company that:
Is flexible and willing to work with your management team to develop a program that will meet your financial objectives; Is experienced in the IT and software finance world, since the sales process, client-decision criteria, and revenue recognition issues are different than that of capital asset sellers;
Provides marketing support and materials to help you promote your financing program. Is willing and able to provide your sales team with materials and training to ensure sales team members are comfortable and easily able to raise financing as an option with their clients; and Is a financially stable, long-term business partner.