To Buy or To Finance?
This question has always been a topic of debate across industry lines. The buy-or-die crowd tends to argue that spending money on something without equity amounts to burning your dollars.
On the other hand, those who advocate for financing cite upfront costs and a commitment to something they may not want in five years as deterrents to outright purchasing. From a generational perspective, renting, leasing, and pay-as-you-go programs have become the standard for Gen Z and millennials.
Even simple online transactions have turned into short and long-term financing contracts, with companies like Klarna, Afterpay, and Affirm promising low-interest rates with little upfront commitment.
In consumer tech, companies like AT&T have been financing mobile phones since they became small enough to fit in our pockets, as they bundle phone purchases with service contracts. This allows mobile carriers a consistent revenue stream while allowing customers to upgrade to the newest devices every 24-36 months. As such, modern consumers have come to expect immediate access to new gadgets with little to no upfront costs, and savvy businesses have catered to this.
“In a high interest rate environment, leasing becomes an even more attractive option for end-users to consider because the delta between borrowing and leasing increases.”
Nick Hogan, Vice President, CCA Financial
Value-added resellers (VARs) know such customer expectations and that innovation happens quickly. The downside of such rapid advancement is that technology becomes obsolete quickly, with the average lifespan of IT equipment being 3-5 years, according to Gartner.
With the increasing number of younger business owners accustomed to subscription and SaaS (Solutions/Software-as-a-Service) models in their personal lives–it’s vital to present financing options that are familiar to them.
This article explores OPEX (operational expenditure) financing and the possible implications for VARs and their end customers.
Understanding Technology Obsolescence and How It Relates to Financing
A familiar phrase in tech is “obsolescence,” when a piece of hardware or software has aged out of its usefulness. This could mean that parts are no longer available for repairs or that new software is no longer compatible with existing hardware. As noted earlier, this can create a problem for those who have had the same technology for over 3-5 years.
Enter OPEX Financing, often called operational leasing, which gives VARs and their customers immediate access to the latest technology while bypassing the financial hurdle of upfront capital expenditure.
“Leasing and XaaS options provide a hedge against obsolescence which is inherent in IT equipment.”
Conor O'Brien, Vice President, Sales, CCA Financial
Let’s compare and contrast some of the other financing models that exist today:
Cash vs. Credit: Choosing What’s Best for Your Customer
Definitions are one thing, but what does all of this mean to the end customer? What is the best choice for their business?
Do they fork out significant cash upfront, potentially straining their working capital? Or navigate the intricacies of financing, balancing affordability with interest costs and ownership complexities?
A cash-rich giant may seek to optimize negotiation power by paying upfront, or a smaller company may prioritize cash flow management. Like most things, the best choice depends on the size and type of business.
It’s essential to explore the impact on ownership timelines, interest burdens, and potential tax benefits while considering the customer's specific needs and financial realities. You may not be a financial expert, so to help navigate, we’ve broken down some (very) general pros and cons associated with financing and upfront cash purchases.
BlueStar’s HybridSaaS Approach
At BlueStar, we don’t believe in a one-size-fits-all approach to financing.
We offer a range of flexible solutions designed to bridge the gap between innovation and affordability for your customers while keeping your bottom line in mind.
As discussed in this article, many of today's customers value accessibility over ownership. They seek immediate access to the newest solutions without the financial constraints of traditional purchasing models. That is where BlueStar's financing shines.
We offer a diverse portfolio of options that let you choose between OPEX, CAPEX, Subscription-Based, and Rip & Replace Models. Customize a solution with hardware, software, and services rolled into one flexible monthly payment.
Check out the video below to learn more.
