Leveraging Working Capital Financing with As-a-Service Providers
As-a-service financing has taken hold as one of the most effective ways for businesses to increase working capital and increase liquidity.
In the as-a-service model, sellers provide their goods and services to customers on a non-ownership basis, which usually takes the form of a subscription fee. Originally developed as a model to buy and sell software in the early 2000s, as-a-service financing is now a staple in industries ranging from energy and artificial intelligence to manufacturing and transportation. In fact, the global market for as-a-service models stood at close to $283 billion (USD) in 2023, with a projection for 2032 of more than $1,122 billion (USD).
As-a-service financing increases working capital by enabling businesses to access technology, equipment and/or services without a large upfront capital expenditure. By paying a subscription fee instead of a large upfront purchase price, they can conserve cash and put it to productive use in day-to-day operations.
Key benefits of as-a-service financing include:
- Predictability: Paying on a subscription basis means making set monthly payments. Companies can manage budgets better, forecast more accurately and make plans for a more predictable cash flow.
- Scalability: As-a-service financing lets businesses increase or decrease their usage of products or services over time to meet changing needs and fluctuating customer demand.
- Greater technology access: Businesses that need to stay current with technology upgrades – to software, equipment, or other products and services – can do so without continually making large capital investments. The as-a-service model lets them access the latest technology while maintaining working capital.
Putting working capital to use
By shifting the buyer-seller relationship from a traditional model of ownership to one that provides goods and services on an ongoing basis, as-a-service financing frees up working capital – and gives businesses the ability to better cover operational costs and invest in growth initiatives.
A small software developer, for example, might be able to gain access to updated hardware on an as-a-service plan, and use the working capital it frees up for staffing and marketing. An equipment contractor could obtain just the equipment it needs for certain jobs, when needed, with an as-a-service contract, and use the additional working capital to develop new business.
Working with an as-a-service financing provider
Selection of a financial provider is essential in implementing as-a-service financing. The right partner will take a consultative approach to understanding each company’s business model and then develop innovative, customized as-a-service programs.
For example, an experienced provider can help businesses meet their sustainable development goals with energy-as-service programs that offer a way for the savings generated from energy-efficiency projects to pay for the upfront costs of the projects. They can help companies that need to lease heavy equipment do so on an as-a-service basis, packaging usage-based billing with maintenance, spare parts and other soft costs into one payment.
Some progressive financing partners can even provide assignment financing for OEMs or vendors that have established as-a-service contracts with customers. In assignment financing, the OEM or vendor receives upfront cash for the payment stream coming its way with its as-a-service contracts. They can use the revenue for operational or other expenses, without needing to modify how they sell or conduct business. For companies without as-a-service financing already in place for customers, a finance partner can help set that up.
More options for growth
As-a-service financing leverages working capital by helping companies retain cash flow by avoiding large upfront capital outlays. Improved cash flow management leads to opportunities for better financial management, more options for growth initiatives and a stronger competitive edge.
Mitsubishi HC Capital America is a leading commercial finance company that creates innovative, 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 we can help you deploy effective as-a-service financing to leverage your working capital.