- January 19, 2022
Exec. VP, Sales & Marketing
The truly puzzling thing about solution providers (a.k.a. resellers) in the information and communication technology (ICT) market is why more of them haven’t used formal leasing and financing programs to promote their product sales. After all, if it’s good medicine for the heavy hitters in the tech OEM world - Cisco, Dell, HPE, IBM, and Oracle to name a few – then why isn’t it just as good for the firms that repackage and resell their products?
Oh sure, ‘the big guys can afford to set up a financing arm,’ goes the argument. But is it really an issue of affordability when so many third-party financing firms offer services that mirror the in-house versions…at none of the cost? There must be more to the story of why so many good resellers take a passive, if not a passing view when it comes to the use of sales financing. In some industries, such as copiers, transportation and lift trucks, the dealers are heavy users of sales financing.
To be fair, there are plenty of tech solution providers that have embraced leasing and financing as an integrated part of their product sales process. Not surprisingly, these financing-enabled companies are quite successful at outmaneuvering their competition at the point of sale. They recognize that in the majority of cases, the customer has no intention of writing them a big check for all that IT magic. Whether it’s software, hardware or a bundled solution that includes maintenance and services, resellers who lead with a financing offer get it. They know that you can discount a purchase price until the margins are razor-thin and you can still expect to hear those familiar objections, “I can’t afford it” or, “It’s not in the budget.”
“What” cries the exasperated salesperson? “But they told me they loved our solution and I even dropped my price by (fill in your own number) %!”
To make sense out of all this, I have listed the five concerns I’ve heard from solution providers over the years that appear to be at the core of this resistance.
- Capacity. Reseller sales teams must stay up with the latest technology updates of the lines they represent, not to mention the variety of special offers, incentives and contests that go with them. They simply don’t have the bandwidth to squeeze one more thing into the mix. Further, management views the effort to set up a program as too time-consuming or not as important as the other strategic initiatives they have on their plate.
- Credit Declines. Solution providers perceive that having their own financing program puts them in the credit-granting business. Moreover, they don’t want to be associated with turning down a customer for credit reasons, as they would see it reflecting poorly on them.
- Limited Value. Firms that have dabbled in sales financing generally see it as a court of last resort and not an integrated part of their sales process. If the customer can’t afford to pay cash, the salesperson can contact one or more leasing companies and get a quote. Usually, it’s a leasing salesperson they have worked with before or it may be a company that management has selected as an “authorized leasing provider.” They use financing like we use pain relievers – only when it hurts.
- Too Complicated. Financing is often perceived as further complicating an already technical and complex sale. Why introduce another element to the mix and risk muddying the waters and potentially screwing up the sale?
- Bad Experience. I’ve heard enough tales of everything from poor communication to untrustworthy salespeople to know that the equipment financing business is no different from any other industry when it comes to bad actors.
Needless to say, each of these objections taken separately or collectively must be considered as very real and honest convictions and be dealt with accordingly. The short answer to these concerns is embodied in the sales financing value proposition:
A sales financing program is easy to implement and you will close more sales faster, with better profit margins, no credit blowback and you’ll get paid quicker.
Overlaying all this is the changing landscape when it comes to technology sales, namely the “everything as a service (XaaS)” packaging of the conventional hardware, software and services sale. Interestingly enough, this new approach to selling technology validates the ‘payment for use over time’ concept.
Some equipment lessors avoid working with solution providers and prefer instead to foster direct relationships with end-users of technology. Equipment financing firms that cater to the needs of equipment suppliers are known as vendor financing companies. The best of these will know how to address each of the concerns listed above and can demonstrate the value that comes with a well-constructed sales financing, a.k.a. vendor-financing program. Done right, they will put you on their back and train your team to make the investment (in time) / benefit equation come out overwhelmingly in your favor.
As a technology solution provider, you’ve undoubtedly experienced your share of frustrations at the point of sale where you don’t close the sales you want at the margins you need. Not that sales financing will put an end to lost or profit-starved sales, but at least it will give you a fighting chance to close the ones you want and live to sell another day. Above all is the notion that a good sales organization always makes it easy for customers to acquire their products and services.
To give you a head start in choosing a financing provider, I’ve assembled seven important benchmarks for consideration. (These also apply to equipment other than technology):
- You want timely, responsive service levels that are demonstrated (get the names of three existing clients and call them!) Ask about turnaround times on quote requests and credit applications and general accessibility when it comes to tracking your deal.
- Good reputation: Do a Google search to see if there is any noise about the firm(s) you are considering. If their practices are not to your liking, move on. Don’t get distracted by reviews of routine collection efforts that are blown out of proportion but look instead for evidence of systematic bad behavior and practices.
- Can they make a decision about your customers’ creditworthiness in short order? It is not uncommon for transactions of up to $150,000 to be credit reviewed without financial statements and decisioned within 2 hours. Some firms actually set higher limits for specific segments but $150,000 is a reasonable benchmark.
- Can they handle the full extent of your product line?
- Can they handle pass-through billing of your service fees if needed?
- Do they have the ability to allow electronic input of credit applications? Note: Despite many firms having this capability, the actual utilization of by-product salespeople is still surprisingly low.
- Can they provide you with regular reporting on key measures such as total fundings for the month/quarter, approvals vs. declines, etc.? The better firms provide this data and much more which allows you to see how well the program is performing for your team.
You’ll note that I didn’t include interest rates as a qualifier above. Most firms are within a general range of rates that can be considered competitive. Interest rates are the financing companies’ “price” and basing your decision on price alone usually results in a bad outcome. You can ask about rates but you will likely find the answer to be, “depends,” meaning, the size of the sale, the lease term and the credit quality of the customer.
In a good economy or a down economy, sales financing can make a difference in your ability to be competitive and even better, help your company stand apart from your peers. If you are open to new possibilities and invest a little time, you’ll see that the returns will be well worth the effort.