How As-a-Service Financing Supports Sustainable Business Growth

Now, we have artificial intelligence as a service and the all-encompassing “anything as a service” term. Estonia even created a country-as-a-service model to attract foreign entrepreneurs.

Springing from the original software-as-a-service idea that began in the early 2000s, the as-a-service business model has taken hold across industries and across the world. The global market for all as-a-service models reached nearly $283 billion (USD) in 2023, according to IMARC Group. The projection for 2032 is more than $1,122 billion (USD) – a compound annual growth rate of more than 16%.

How it works

The as-a-service model works by sellers, or suppliers, providing products and services to customers on a non-ownership basis – usually as a subscription. The information technology industry, where it all started, provides a good illustration. Businesses can find it very difficult to stay up to date with up-to-date hardware and software they need to remain competitive and grow, because continually purchasing new systems and equipment would be cost-prohibitive. But a subscription (as-a-service) model could let them access the latest technologies as they come along and are needed, reducing expensive up-front outlays.

The as-a-service model shifts the buyer-seller relationship from a traditional model of ownership to one that focuses on providing good and services on an ongoing basis. Results – including increased flexibility, increased value and increased opportunities for sustainable business growth – continue to drive adoption of as-a-service models.

As-a-service in the finance industry

As the model expands in use and popularity, its reach into the finance industry is not surprising. In the finance-as-a-service (FaaS) model, businesses outsource their finance operations – such as accounting, payroll, planning and analysis – to third-party providers. But as-a-service models in the financing sector reach far deeper and broader than FaaS. Here are a few examples of how businesses are incorporating as-a-service models.

• Assignment financing. In assignment financing, an OEM or vendor receives cash upfront for the payment stream coming its way with the as-a-service contracts it has established with its own customers. The OEM or vendor business is then able to use the cash infusion for working capital. Some financing partners will develop customized as-a-service models for OEMs and vendors that do not yet utilize them with customers. The business can realize benefits from assignment financing as well as from the ability to generate revenue from customers on a monthly-payment basis. It’s even possible to manage customer as-a-service programs on a private-label basis, taking the burden off the OEM or vendor while increasing efficiency for its customers.
• Service contracts in manufacturing and transportation. With ongoing needs for preventive maintenance of equipment and service, as-a-service financing is gaining traction in the manufacturing and transportation sectors. The end user, the financing provider and the manufacturer (or distributor) that provides maintenance and service form a working triad to develop unique as-a-service programs. More partnerships are emerging as companies find associates to create cooperative arrangements.
• Energy-as-a-service. More and more businesses are working to “green” their operations, in projects ranging from LED light installation to development of their own microgrids. Many corporations have established quantifiable sustainability goals to meet in defined periods of time. To meet these targets while continuing to grow, they must develop smart ways to finance their efforts. Energy-as-a-service (EaaS) has emerged as an option for companies that want own an energy asset or employ pay-as-you-go models. If a company chooses to own an energy asset – typically infrastructure – outright, EaaS offers a way for the savings generated from energy-efficiency projects to pay for the upfront costs of the projects.

Benefits

The as-a-service model can be a cost-effective financing solution that supports sustainable growth.

• Improves cash-flow predictability.
• Simplifies purchase agreements.
• Accelerates the sales cycle.
• Can reduce or eliminate the need for equity or debt financing through reduction of up-front capital requirements.
• Gains competitive advantage.
• Increases customer satisfaction. Customers like as-a-service billing and are, in many cases, demanding it. The model gives them a predictable budget, greater flexibility, and, often, more services. With as-a-service financing, they can limit the risk and cost of buying new technologies or equipment. As a result, they can devote more resources to their own core business, which allows them to become more competitive.

As-a-service financing programs can support sustainable business growth through the supply chain. Improved operations efficiency, greater agility and more consistent cash flow give companies more ability to compete and more options for growth.

Mitsubishi HC Capital America is a commercial finance company pioneering customized as-a-service financing programs. We use a consultative approach focused on helping clients sustain business growth. Let us know when you are ready to learn more about how to deploy effective as-a-service financing as part of your strategic growth plan.