What You Said: The Top 5 Benefits of Financing
We commissioned a 3rd party research firm to conduct a survey on 194 of our c-level partners. While a variety of information was collected, perhaps some of the most notable were what our partners listed as the top benefits of financing.
Here are the top 5 benefits that were given in reverse order:
Many companies in the industry struggle with extremely long days sales outstanding (DSO). Relying on the customer to pay you after you make the sale can be uncertain and strains your budget. Especially when it’s for a large sum and you’re already out the cash but they’re still trying to find the check, or ‘it’s already in the mail’.
In fact, 40% of those surveyed said their DSO decreased by 20 days or more and an even higher 76% of those partners said their DSO decreased by five days or more when GreatAmerica pays them upfront. You’ll get paid faster so you can invest that money back into your business sooner (and your accountant will thank you too).
In fourth place is one benefit that Solution Providers don’t always realize comes with monthly payments. However, as the results show, our partners found their managed services deals have higher margins. That is because when someone sees a large lump sum they are more likely to price shop. They’ll try to lower the price by slashing parts off of your solution. That is not the case when they see a monthly payment. Their mind frame shifts from ‘how do I reduce that total cost?’ to ‘can I afford that in my monthly budget?’
In fact, 71% of the surveyed partners said that their customers on financed agreements acquire additional products and service lines. Since add-ons and upgrades don’t have a large effect on the monthly payments, they are more likely to purchase them.
One of the biggest struggles with switching to an As-A-Service model is that it can be very hard on a company’s cash flow. Most companies that go it alone end up fronting the cost of all the hardware in the deal, which is a cost they won’t make up until a year or so into the contract. Then there is the risk of the customer defaulting and you have to take a loss. This model can quickly tie up all your cash so you don’t have any left to continue funding managed service deals or invest in other areas of your company.
That is probably why our Solution Providers said that their enhanced cash flow is the third best benefit to offering financing. All of that burden and risk is shifted off of them and onto the financing company. You get all the cost of the equipment upfront, and you don’t have to worry if the customer defaults, we take the hit – not you!
Coming in at benefit #2 is that the customers have an easier time saying “Yes” to your solution. When you think about it – it makes perfect sense. When you are in the market to buy a new house, the total price of that house may have you thinking there’s no way you can afford that right now. However, once you see the monthly mortgage payments, you realize that you can fit that into your budget. Suddenly, it becomes possible and you’re ready to move in! The same thought process applies to your customers.
Plus, you’re not fighting for your customer’s Cap Ex dollars anymore. Your monthly managed service will use their Op Ex dollars, which makes them more agreeable to your solution.
Finally the #1 benefit to offering monthly payment is arguably also the most important – it’s easier to close deals. That’s really what your primary goal is all about, right? Gaining more customers, selling more and ultimately increasing your company’s value. As with #2, if your customers have an easier time saying yes for the reasons mentioned above, then you’ll be closing more deals in less time. The faster you close deals, well, the sooner your sales team can move onto the next deal and the one after that!
Thanks to offering monthly payment options, you’ll be selling more deals with higher margins, have fewer days sales outstanding and an enhanced cash flow, along with happier customers that will be long-lasting and easier clients for you (since they didn’t remove crucial parts of the offer to cut the price and got add-ons instead).
As you can see, it is a domino effect that all leads to you having a larger, more profitable business with a high valuation. However, you won’t see any of it unless you push that first domino and start offering monthly payments on every deal.
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