"Financing is more than just a great way to acquire IT without a big upfront investment. As part of your overall IT management strategy, financing can also help keep your technologies current, reduce costs, minimize risk, and preserve your ability to make flexible equipment decisions throughout the entire technology life cycle." IBM Global Financing

Leasing is a widely accepted method of acquiring technology goods and services. Budget constraints, corporate bank covenants, and balance-sheet management all lead corporations to use leasing as an alternative to cash. Below I present several typical sales scenarios and the benefits that accrue from using a leasing solution.

Imagine that the initial sales call has gone well, and, after several months of evaluation in the customer’s environment, the customer decides to acquire it. If the customer issues a purchase order at list price and says 'thank you,' the vendor invoices for the product and hopes to get paid in a reasonable time frame. More likely scenarios include discussions about price and discounting, discussions about budget constraints and timing of the acquisition, and discussions about issues with the product. The limits of a cash-only discussion become obvious here. The only answer to discounting requests is to find the number that works within an agreed upon discounting matrix. In a cash-only scenario, there is no answer to statements such as "it's not in the budget," "we've spent all of our capital budget," or, "we just had to give back part of our capital budget." The result for the seller is unexpected delay.

Leasing allows customers to choose between two alternatives – financing or cash. For the supplier, it enables customers to say "yes" when they otherwise might have to say "no."

The following demonstrate the advantages in more detail.

Scenario 1:

Problem: The customer wants the product today but needs to wait four to six months to get the product approved within the next budget cycle.

Solution: A lease is put in place with the first payment due on the date that the budget is cleared. The balance due under the lease may be paid as a series of scheduled payments or a single lump sum. In either case the sale is completed today.

Scenario 2:

Problem: After completing a lengthy evaluation, the customer is demanding large discounts. The sales representative has made a huge investment in the account and is anxious to "close the deal."

Solution: There is a real difference in the mind of a buyer of any kind of item, if he is thinking about discounting against a $200,000 purchase price versus a monthly payment of $6,100. Leasing may help you keep your discounting increments more reasonable. Because the customer isn’t writing a big check for your product, or in fact any check at all, he is going to view the process differently as well.

Scenario 3:

Problem: The customer wants the product but doesn’t have authority for the dollar amount being requested.

Solution: While the customer who lacks authority to commit the cash will also not have the authority to sign a lease, he may feel more empowered to pitch your product under the guise of needing other approvals on a lease. This also allows the customer to save face, rather than admitting that he lacks authority to make a commitment.

In addition to increasing the probability that a customer can acquire your technology today, vendors can achieve three additional primary benefits through leasing:

• Benefit 1: Day Sales Outstanding: The benefit of leasing in improving day sales outstanding can be significant. Once the customer has accepted the goods from the vendor, the customer signs all leasing documentation. The vendor should be funded within seven days of submitting those documents to the leasing company. From shipment to acceptance to funding of the invoice should never be longer than 30 days and may often be shorter.

• Benefit 2: Financial Footprint: Once a lease is in place on your products in the customer's environment, the vendor owns that “financial footprint.” The customer is tied to the vendor through the lease, and thus the vendor has greater control over upgrades and replacements. The vendor can offer upgrade and replacement solutions that no competitor can beat because of the nature of the leasing relationship. Controlling the financial footprint helps gain better control of the future.

• Benefit 3: Future Business: While the documents for leasing can be slightly more difficult to execute than sales documents on the first transaction, once a lease is in place the supplier has an easy-to-use, easy-to-execute template in place for future business. This is a tremendous benefit, because it changes the add-on product discussion. Saying to the customer, "Let’s just add a new equipment schedule to the master lease" can be a lot easier to close than going through all of the budget cycles and decision making that a typical sale entails. Part of the reason that IBM and other major systems companies focus their energy on leasing is that it creates a behavior pattern and an economic alternative that allows them to respond quickly to unplanned needs at the customer. It is a formula for success.

Action Item: Offering a leasing option can improve sales volumes and cash flow while strengthening your relationship with your customers and smoothing the way for add-on and replacement sales. Vendors should seriously consider offering a leasing option along side the usual cash purchase arrangement.

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