How does software finance differ from hardware finance?
Hardware finance is straightforward for most finance providers. They have a tangible asset, that in most cases has a serial number and that has a market value throughout its useful life. This makes the risk assessment and establishment of security uncomplicated.
Software finance on the other hand, in many cases is seen as too difficult or risky for finance providers. Software isn’t a tangible asset. In fact, in most cases, you’re not even purchasing the software as such, you’re purchasing the right to use the software (a license) for a given period. The license is in your businesses name and is not something that can be re-marketed if the need arises. This lend is therefore in effect, classified as unsecured.
Why should I finance my software?
There are some key benefits to financing your software that can put you in the box seat when it comes to negotiating your next software and services solution with your vendor:
Many vendors offer a discount on up-front payment for 12,24 or 36-months licensing
Your vendor may offer you the option to pay for licenses over a 12–month period on a monthly, quarterly, bi-annual or annual basis (all in advance). In the case of the annual payment, if you elect to pay for your entire agreement (in this scenario 12 months), your vendor may offer a healthy discount as they are getting their money all up-front.
With finance, you can take advantage of the up-front discount (the vendor is paid the annual amount at settlement) while you take advantage of the cash-flow benefits by paying for it monthly via your Software and Services Agreement.
If your vendor offers even larger discounts for 24 or 36-month terms, the financial benefit may be even greater.
Take advantage of fixed pricing with no annual increases
Many vendors include estimates or guaranteed price increases on renewal of licenses. This may be in the vicinity of 5-10% above the initial 12-month term. If you take up the option of a 36–month term with the vendor at the current pricing, you may be able to avoid the price increase.
In this scenario, payment may not need to be up-front, just a signed agreement of 36 months, but couple this with the discounts potentially offered by your vendor for up-front payment and there are two financial benefits for your business. Simply pay a fixed monthly finance instalment over the 36-month period using our software and services agreement to gain the benefit of no increases.
In addition to the benefits associated with your negotiations with your vendor. There are also additional benefits to your business in relation to obtaining the best possible solution and maintaining your capital:
Get the solution you need, not the solution your capital can afford
In many cases, if you’re embarking on a major software solution project, there will be costs associated with the modules and/or features that you can implement. You may need modules X, Y and Z but at a total cost of $100,000 plus implementation, with a fixed budget of $80,000, you may need to settle for X and Y at a price of $60,000 plus implementation. Impacting the overall business benefit you can gain from your solution.
By electing to finance your solution, you avoid having to compromise based on capital and can start looking at the nominal increase adding the modules you need has to your monthly software and services agreement instalment. Adding Z to your X and Y now becomes the difference between $2,000 and $3,000 per month, rather than $40,000 capital up-front.
Pay for your implementation and professional services as part of your instalment
Vendors rarely offer the option to pay for implementation and professional services over a term period. These costs are current for the vendor, they have staff that need to be paid for the services they complete.
Add these costs to your software and services agreement and your vendor gets paid at settlement and you can pay for those services over your finance term, aligning the services costs to your licensing costs.
Pay for your software solution as it makes (or saves) your business money, not as a lump sum before.
You know the software solution will assist your business in making additional revenue (or saving costs on resources) but you struggle with the large up-front cost proposed by your vendor.
This is the ideal scenario for financing your software solution. Maintain your capital, removing any cash flow concerns and pay for your solution via fixed instalments, for a fixed term, with no additional fees or charges.
3E Advantage Software Financing
3E Advantage has worked with its panel of funders to develop the appropriate agreement and funding solution for software and services finance. We offer 100% software finance as well as IT solution funding that may include new hardware as well as software licensing and implementation services. Whatever your IT solution requirements are, we have the appropriate finance payment solution for you.
Talk to 3E Advantage about your needs now
Talk to the 3E Team about your specific requirements. They will be more than happy to discuss how our Software and Services Agreement can assist your business.
This article was originally published by 3E Advantage.
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