Warami Technology Consulting

SmartPay from Microsoft offers total IT financing with no payments for 6 months

Introduction

Historically, small businesses have typically funded technology spending from their own internal cash flow. In the last few years this spending pattern has started to change in favour of vendor financing.

In this article we look at what vendor financing is and how it can benefit the small business.

What vendor financing is

In essence, vendor finance is a form of credit provided by a supplier of products or services.

This allows payment for the products or services to be deferred from the time when they are received.

The customer typically makes a series of payments over time instead of paying a lump sum at the time the transaction was made.

The benefits of vendor financing

• Allows companies to preserve much needed capital
• Matches payments for items to their actual use. For example, most technology hardware has a 3-5 year economic lifespan. Making simple and affordable payments over this time period may make better business sense than paying a cash sum up front.
• Removing the focus from the up-front cost can help you meet your financial objectives as well as your business goals.
• You can acquire a more complete technology solution when you need it most - not only in those times when you have the funds and budget available.
• You can finance services in addition to physical products. For example, Microsoft's SmartPay program allows customers to finance their total IT solution - which not only includes Microsoft software purchases but all associated services / consultancy and 3rd party hardware and software included as part of the solution

Who uses vendor financing?

Did you know that over 80% of top companies currently finance their IT spend? Yet historically small businesses have tended to finance technology purchases from internal cash flow.

As recently as 2005, it was estimated that only 18% of small businesses used vendor or bank financing to fund IT spending.

The market for vendor financing is growing though - in 2007 it was estimated that 35% of small businesses now look towards financing their technology spending.

What does all this mean for small businesses?

Whilst essential spending on technology will continue the IT industry seems to be gearing itself up for a change in the way that this is purchased. As the economy slows and the 'credit crunch' continues to bite vendor financing will continue to look atractive to companies seeking to benefit from the adoption of new technology.

This could be of particular benefit for those companies who recognise that technology investments can improve profitability in the short to medium term. Rather than go down the traditional route of cost-cutting these companies are likely to turn to vendor financing to allow them to make technology investments that improve their decision making, optimise supply chains, make better pricing decisions and improve employee productivity.

Not only do they stand to gain more in the short-term, but by continuing to invest in technology such companies will inevitably find themselves better placed come any upturn in economic activity.

TrackBack URI for this entry

Comments (0)

Subscribe to this comment's feed