Alex Solomon has no doubts about the role leasing plays in the performance of his company, New York-based Net@Work, one of the largest Sage Software resellers in the country. “It’s great,” says Solomon. “It just makes it easier for the client to get the deal done. In essence, you are talking about a monthly fee as opposed to the dollar amount [in making a sale].
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Of course, many businesses are already accustomed to leasing one piece of business—the office copier. While Net@Work probably does about $2 million to $3 million in leases, its sister company, Docutrend, which handles copiers and document management systems, utilizes leases in about $5 million to $6 million worth of deals.
Similarly, Jeff Goldstein, CEO of Queue Associates, a Dynamics SL reseller that is also based in New York, says including leasing in proposals “makes it easier for us to cost justify [the price.]”
And that’s somewhat of the state of leasing hardware, software and services in the midmarket and the small business market. Everyone is familiar with leasing, but it’s not quite a universal tool the way it is in other parts markets.
The benefit to the client is the ability to stretch out payments, rather than having to cough up a chunk of cash at once, even though it means paying more over the term of the lease. For resellers, the benefit is they often can sell more. Solomon says Net@Work clients who buy a bundle of equipment and services will often buy more support hours. Sometimes, it is simply the difference between a sale or no sale for a cash-conscious prospect.
Net@Work offers leasing as an option early in the process. It wasn’t always that way, but the company began making it a standard part of the package about two years ago.
Indeed, this is a time-honored financing technique for helping businesses conserve cash.
Leasing has also grown increasingly popular as the cost of financial software implementations have increased and as vendors have been able to offer financial options that make it easier on both the reseller and the end-user.
Leasing is a relatively new tool for some companies. Microsoft’s experience is still short term, compared to Sage Software’s nine years in the business.
But for part of the market, leasing was somewhat the only way to go, particularly with products like AccountMate whose implementations get more costly because of the high degree of customization performed for clients.
“We were doing it before it became fashionable or before we got into any formal relationships with leasing companies. A lot of resellers worked with leasing companies or banks,” notes Bill Bailey, national sales manager for Novato, Calif.-based AccountMate Software.
One of the reasons leasing is still relatively new to the midmarket software business is that software is a different animal than tangible goods. Default on a car or hardware purchase and the vendor has something to repossess and sell to recoup some of the investment. Software is a different story,
“You can’t. If you could, you couldn’t resell it legally,” says Brian Madison, the executive who heads Microsoft Financing. However, it turns out software is a fairly safe investment since it is such a crucial business tool. He continues that, “What you find is the loss rates aren’t high, people stop paying for the software at the same time they turn off the lights.”
That combination of factors is helping leasing become an increasingly popular way to buy computer products. Microsoft, for example, expects to use leases in more than $1 billion of sales during the year ended June 30.
And Microsoft is hardly the only company that is seeing increased financing activity to buy a full range of products.
“Five years ago, we were probably doing 10 percent of our deals as leases,” says Dan Kraus, vice president of SAP’s Business One operations. “Today, we are probably doing between 50 to 60 percent of our business as lease deals.”
Business One, of course, is relatively new to the market. But still the goal of conserving cash is an old one. And leasing helps both large and small companies.
Small companies actually have a greater need to hang on to cash and leasing can help them get more robust systems than they can afford.
And Business One is less costly than some of the programs serving the upper end of the mid-market, such as Dynamics AX and Sage’s MAS 500.
From the reseller’s point of view, the most important thing about a good lease program is not to have to wait for money to flow in each month.
Certainly, the need to get cash upfront can make or break a leasing program.
Although Microsoft Financing serves the entire Microsoft business, it got its start with the Dynamics accounting software line. But when Microsoft first rolled out a leasing program in 2002, the program stumbled because VARs did not get paid at the beginning of the deal.
Madison, who has headed the Microsoft program since 2004, says the program was in the incubation stage for two years. Whatever the description, he notes that when he came aboard, he changed the terms of the program.
The most important change was having resellers get paid upfront.
“The customer takes out a loan and we pay the partner for the amount the loan is for,” he says. That also means that Microsoft Financing Services assumes the risk, in case there are end-user payment problems.
“Partners like the fact we help remove budget restraints,” says Madison. “Transactions are larger when there is financing.”
End-users also end up making decisions earlier.
“If you get rid of the price objection, you get into solving the business problem,” Madison says.
One of the other major issues in financial software implementation is the length of the implementation. End-users don’t want to pay full fare for software that is being installed, but which has not become fully operational.
The tool for making this possible is much like a mortgage with a low introductory rate. In this case, the program is called 6/50, which means that the end-user can pay a nominal amount—$50 a month for six months—then, with the software presumably fully operational, the user can begin making full payments.
“It was designed to let users test drive products or enable the adoption of the new technology. It makes it easier for them to get the software today,” he says.
Microsoft also offers a wide range of options, including different lengths of leasing, including 24, 36, 48 and 60 months. The minimum deal size has also been reduced to $3,000, which makes leasing available to more small companies.
That’s important because small businesses have a high degree of interest in financing technology purchases, according to Bill Liddell, senior director of Microsoft Financing.
“We know from our survey data that 65 percent of SMBs look at outside financing, whether it’s of financing through a vendor or through a bank,” says Liddell.
The company is going even further with an offer that will be embedded in many software products. The $50-a-month payments can be extended to 12 months, followed by 36 months of regular payments. In fact, Microsoft will offer the end-users to make larger payments of any size.
“It can be $50, $100, $200 a month,” Madison says.
Like Alex Solomon, Goldstein likes the leasing program, since it eliminates chasing receivables.
“Microsoft qualifies the customers and approves them and I get a check for everything upfront,” he says.
Sage Software has been offering leases for longer than Microsoft, and it is also offering financing on smaller deals. Leasing is available for terms of two to five years for transactions as small as $1,500.
Sage’s program has changed. But the person running it has stayed the same over nine years under Stephen Interlicchio, National Program Manager IT Segment for Key Equipment Finance of Davie, Fla., even as the company Interlicchio works for has changed.
“It started with First Sierra Financial. We were sold to American Express in 2000 and we ran the program under Amex until 2005,” says Interlicchio. Then American Express divested its leasing and tax divisions and sold the unit to KeyBank.
The continuity in personnel is important, says Interlicchio, because it assures end-users and resellers that the programs have been designed to meet their needs. And their needs have been changing.
“The products have evolved towards the end-user needs, what the market is dictating and what the reseller channel is in need of,” he says.