While studies show that technology spending is once again on the rise, there’s a reason you haven’t heard a collective sigh of relief from the software industry. While many budgets are once again allowing for the purchase of enterprise software, hardware and peripherals, there is no doubt that today’s buyers are smarter, wiser, and more selective than ever before.

Even though the purse strings have loosened, competition is at an all-time high. It is no longer enough to provide a software solution that meets a potential customer’s needs or even to provide it at the best price. Today, smart sellers are constantly looking for ways to stay one step ahead of the competition.

While increasing sales is always part of a competitive business strategy, software development companies often overlook a simple way to accomplish this objective – making it easier for customers to buy.

An option growing in popularity among software vendors is setting up a customized finance program that provides hassle-free financing solutions for your potential customers. In addition to “one-stop shopping,” your customers can take advantage of other financing benefits that make it easier for them to commit to technology purchases, including:

100 percent financing – Many finance companies offer 100 percent financing for the cost of software and maintenance contracts, with no down payment required. Because customers don’t have to come up with a down payment, they can make purchases right away rather than stalling sales with the “wait and see” mentality that often accompanies dwindling cash reserves. It also allows your customers to invest more capital in revenue-generating activities.

Improved cash flow management – With financing software, your customers can conserve capital to reinvest in their business and improve budgeting accuracy through fixed monthly payments. Financing also makes it easier for customers to access multi-year budgets by paying for the benefits of your software over its useful life.

Flexible payment structures – Clients can optimize the project budget by availing of flexible payment structures available through financing to maximize the return on their investment. For example, with software financing, customers can increase payments to match the revenue generation of a new technology project that is using the financed software.

While financing provides an obvious advantage for the buyer, when a program is well-planned, the list of benefits can be even more beneficial for software developers, distributors, and resellers.

Improved Customer Relations

As mentioned above, financing packages add value to the customer by increasing their purchasing power, offering greater flexibility, and providing convenience. It also increases their satisfaction through the ability to leverage their budget to obtain a total technology solution – which can include software, hardware, service, support, integration, and training – not just parts and pieces that they can buy.

Shorter Sales Cycles

On the sales side, any customer who expresses some interest in a product sounds like a good lead. However, there are times when the question of paying for the new software prevents a sale from happening. When finance is part of the sale, the time spent on dead-end deals can be eliminated, as the ability to pay is immediately considered in the equation. In addition, many finance companies now offer fast, easy credit and documentation processes, so you can close a sale quickly and avoid costly processing delays.

Another advantage is that since software needs are being discussed early in the sales process, the finance specialist can work with the chief financial officer or accountant to determine which financing options and payment plans best meet the needs of the business. And best suited for cash flow.

Direct customer financing can also save software vendors millions of dollars each year by reducing the number of days of sales backlog. Consider a company with quarterly cash sales of $50 million. It may take an average of 45 days to collect the payment. Assuming a lending rate of 6 percent, a 45-day delay in payment results in a carrying cost of $371,204. If the same numbers are run with a leasing finance program that generates payments within 2 days, the carrying cost is reduced by $82,253, saving the company over $288,951 in one business quarter.

Taking the Next Step

After identifying interest in offering flexible financing as part of the sales process, the next step is to develop a finance program. By partnering with an experienced leasing company to develop a finance program for your customers, you can transfer all of the uncertainty of extending terms to the finance company for your customers.

Partnering with an experienced finance company also means you can focus on what your company does best – developing software – while letting a finance specialist handle the intricacies of the finance program. Simply put, by working with a third party, your company will receive all the benefits without any risk.

Whether you choose to refer your clients directly to your financing program partner or work with a third-party finance partner to develop an in-house program, choosing an experienced equipment finance partner is essential. Throughout the sales process, the finance specialist will work closely with your customers, and it is important that their work and service levels reflect your company’s ability to meet your customers’ expectations. When looking for a finance partner, look for a company that:

Flexible and willing to work with your management team to develop a program that will meet your financial objectives;

As experienced in the IT and software finance world, since the sales process, client-judgment criteria, and revenue recognition issues are different than those of capital asset sellers;

Provides marketing support and materials to help you promote your financing program

Is willing and able to provide materials and training to your sales team to ensure that sales team members are comfortable and able to easily approach financing as an option with their customers; and is a financially stable, long-term business partner.

Realistic Options to Improve Small Business Finance Success

Aiming to be realistic when seeking a new commercial loan and working capital financing will help commercial borrowers avoid many commercial finance problems. Despite the tough challenges affecting most working capital loans and small business financing, with proper preparation business owners should be in a better position to obtain new financing. It should be anticipated, however, that the terms of the financing will differ from those of prior commercial financing. Due to recent commercial lending difficulties, business owners actively assessing the most effective options for their small business finance decisions are likely to find the easiest path to business loan success.

Given the volatile conditions affecting credit markets recently, this will not be an easy task. A very common example of the problem illustrates how much misinformation and confusion there is about business financing and the availability of working capital. Getting a more accurate picture of what’s actually possible can be one of the most difficult challenges for commercial borrowers.

There are several harsh realities that must be faced by all small business owners when seeking to identify realistic options in a confusing working capital management environment. For most current commercial financing decisions by business owners, there are several key factors to consider. In the first instance, additional small business loan collateral is being requested by most commercial lenders. Second, many regional and local banks have stopped lending for business financing and working capital.

In the third instance, businesses that are not currently profitable or current in their loan payments will face widespread hardship. Fourth, business creation funding is currently very limited in most sectors. In the fifth instance, lenders are eliminating unsecured business loans for most small business owners.

Despite the new business financing limits, there are viable working capital options for small business owners to consider. An increasingly effective commercial financing option amid an uncertain economy is a merchant cash advance program based on credit card processing activity. Even though this commercial funding option has been available for a few years, it has not been used by most small businesses.

For most businesses that accept credit cards, merchant cash advances should be evaluated as an important tool for improving business cash flow. Small business owners interested in pursuing this financing option should consult with a business financing specialist who is knowledgeable about this working capital management approach as well as other small business loans.

Even though working capital loans are not as widely available as they were a few months ago, this type of small business financing is actually still obtainable. Since some of the largest providers have stopped making these business loans, the main change for business borrowers is likely that they will be dealing with a different commercial lender. Small business owners will benefit from finding an experienced and articulate business financing expert to assist them in evaluating realistic options because the most effective working capital financing providers are not aggressively marketing this capability.

As emphasized above, it is becoming increasingly important for business owners to first determine their effective business financing options when making commercial financing decisions. Due to the recent volatility in the financial markets, this task is likely to be more difficult than most commercial borrowers realize.

It is advisable to explore business finance options that may become necessary if the economic situation changes further even for business owners who are satisfied with their current working capital financing arrangement. The use of Plan B contingency funding is an important tool to assist commercial borrowers in this process.