Using Financing to Optimize Cash Flow in As-a-Service Businesses

Cash is what makes sure a business can meet payroll, rent, supplier payments and other short-term obligations involved in its day-to-day operations. It reduces the need for external financing, provides the means to invest in growth efforts, provides a cushion for unexpected expenses and contributes to a company’s financial stability of a business.

But cash flow management is essential. Companies must carefully manage cash flow to make sure they have what they need when they need it. Cash is vitally important, but excess cash can impede growth and raise questions among investors. Cash flow optimization becomes a science in and of itself.

As-a-service business finance

Enter as-a-service finance, the business model by which a product or service is offered on a subscription basis. It moves the customer-supplier relationship away from the traditional model of purchase and ownership to a non-ownership one. The model, with roots in software-as-a-service, has expanded beyond information technology to encompass a wide swath of industries, products and services. Close to 50 different as-a-service offerings now exist, with “Xaas” even denoting “anything as a service.”

When it comes to cash, as-a-service finance solutions can help optimize cash flow – especially for companies that incur major capital expenditures on a regular basis and for those that must stay current with technology of any type.

Cash flow optimization across industries

Manufacturing is one prime example of how companies can optimize cash flow with as-a-service financing. Many manufacturers must regularly purchase, and replace, expensive equipment and inventory. They also need to maintain adequate cash reserves to manage cyclical ups and downs, so purchasing outright may simply not be affordable or prudent. Similarly, equipment contractors may need certain pieces of equipment for some jobs but not others, or only at certain times of the year. As-a-service models can provide access to the equipment these businesses need, when they need it.

Businesses of all sizes and types may need to stay up to date with hardware and software to remain competitive and to grow. But with the rapid pace of technology advancement, continually purchasing new systems and equipment would be cost-prohibitive. Acquiring what they need on a subscription basis allows them to access the latest technologies, reduce expensive up-front outlays and maintain cash flow.

As-a-service financing solutions, particularly energy-as-a-service (EaaS), are in-demand options for companies looking to become more energy-efficient. With EaaS, customers pay for an energy service on a subscription basis. The service provider takes responsibly for the installation, maintenance and operation of the energy system provided, which could be anything from solar panel installation to electric vehicle infrastructure establishment to microgrid development. Again, without having to make a large upfront capital investment, the company retains its cash.

Taking care of service

Importantly, as-a-service contracts include maintenance and service. In the case of large equipment – such as in manufacturing and transportation industries – this may include preventive maintenance. Removing the cost and time burden of handling service and maintenance can go a long way toward optimizing cash flow. It also frees up time the customer can use to focus on its core business.

The provider side of EaaS

Customers aren’t the only ones who benefit from as-a-service financing. Providers gain a source of recurring revenue, including the opportunity to develop and introduce new offerings in their core fields. They also may be able to broaden and deepen their customer base.

Providers also can offer some unique programs as part of their as-a-service solutions. They may be able to actually take ownership of equipment and lease it back to the customer, assuming the residual risk. Customers benefit from a more streamlined financial process, and can devote time and energy to their core competencies. EaaS financing could also feature usage-based billing for equipment, which can be packaged with maintenance, spare parts and other soft costs into one payment.

Advantages

To summarize, as-a-service financing can optimize cash flow for businesses in several ways.

• Improves cash-flow predictability
• Helps stay current with technology
• Eliminates costs and time involved in servicing and maintaining equipment
• Can reduce or eliminate the need for equity or debt financing through reduction of up-front capital requirements
• Results in lower total cost of ownership

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 generate long-term 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 plan.