Software financing solutions for vendors

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software and services financing

Most IT vendors and resellers are familiar with financing when it comes to hardware sales, but are you aware that you can also fund 100% software sales? With the right payment solution partner, you can access software financing for your software and services solutions. 

 

How does software finance differ from hardware finance? 

Hardware finance is straightforward for most funders and finance partners. 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 funders. Software isn’t tangible asset. In fact, in most cases, your client is not even purchasing the software as such, they’re purchasing the right to use the software (a license) for a given periodThe license is in the businesses name and is not something that can be re-marketed by the funder if the need arises. This lend is therefore in effect, classified as unsecured. 

 

Why offer software finance? 

Consider your current sales model for software. It likely falls into one of two categories: 

Sale of a subscription license on a per seat basis paid monthly with a pre-determined minimum term. 

In this instance, you probably sign your client up to a 12-month term and recoup the subscription on a monthly basis and then navigate the renewal process somewhere around the 9month mark in anticipation of securing another 12month renewal. 

Do you offer discounts to these clients to sign up to a longer minimum term?  

In this instance you could offer your clients a 24 or 36month term, discount the up-front subscription (remembering the administration required to renew at 12month intervals) and offer the finance agreement for a comparable monthly amount. 

Selling the 36-month term is straightforward if your solution normally has an annual increase. By signing up to the 36month agreement at today’s price, your client can beat the price-rise. 

 

Do you only get paid for your sale on a monthly basis as the subscription is paid, unless you manage to get the client to pay for 12 months up-front in advance? 

In this scenario, using software finance will allow you to still offer your client the per month payment on a 12-month term, while you can take advantage of any discounts offered on an up-front payment option and also realise your revenue up-front at settlement. 

 

Sale of a perpetual license of an enterprise-based solution along with a per annum (sometimes per seat) maintenance.  

In this instance your sales model may focus on working towards a budget determined by your client for modules and functionality that they can get as part of their investment. In addition to this, you outline the ongoing annual maintenance that will be due as a lump sum per annum in your proposal. 

Does your proposal outline the up-front cost of implementation and licensing along with a schedule for the first 1-3 years maintenance? 

In this situation, adding an additional module or feature can potentially add 10’s of $1,000’s of dollars to your proposal. Is this going to push your client’s budget? Are they likely to forgo modules and features that you consider essential purely to keep the cost down? 

By offering a monthly investment in your proposal, additional modules or features can equate to a nominal increase in your proposed monthly amount. Consulting and professional services for the implementation can also be included in this monthly cost, spreading that initial investment over a 12-24-36-month payment plan.  

 

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. 

To offer this, we have committed to ensuring the vendors we partner with and the software solutions they sell meet certain criteria. These include: 

The reseller and more importantly software vendor are well established 

Our funders need to be confident that the software they are financing will be supported now and for the entire term of the agreement. While years established is not a perfect indicator, it’s the most appropriate metric in this instance. 

In addition to this, the software needs to be well-established and have other entities that can support and maintain the solution if the reseller were to cease operating. 

The software provides measurable business benefit 

Is the software integral to the operations of the business? That is, is it a major cog that without the software, the business would be materially impacted?  

 

Talk to 3E Advantage about your sales model 

Talk to one of our helpful team about your specific sales model. It’s sure to help you identify where 3E Advantage can assist you in increasing your sales, increasing your margin, improving your cash-flow and securing your clients for the long term. 

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