Today’s buyers expect more from their suppliers than ever before. With businesses being so dynamic, buyers expect flexible procurement options, along with holistic solutions and data insights that improve operational efficiency. As their output levels change, particularly in the current environment, then buyers also expect the amount they pay for their working assets to align with their actual usage of those assets.

The most successful buyer-supplier relationships involve a high level of trust – the buyer wants to be assured the supplier has a vested interest in the success of his business. When it comes to the provision of services, this holds true as the supplier will naturally only get to perform those services for the buyer if the buyer’s business is successful. In other words, if the buyer is still in business over time and the buyer has used the assets to a level sufficient for them to require servicing. Compare this to the supply of the asset alone, and the supplier’s vested interest in the buyer’s success weakens. Why? First, the asset will have been sold on day one of the relationship, either by way of cash sale to the customer or by sale to a funder that has taken over the credit risk in the buyer. Second, the payment received for the asset does not correlate to any usage of the asset by the buyer, that is, payment is the same irrespective of whether the asset has been used a lot (likely meaning the buyer’s production is up and that their business has done well) or sadly, not very much at all.

Relate this to the consumer market. If I want to buy an iPhone, I pay £1000 for the handset and the deal is concluded on day one. The shop has my £1000, and the shop does not care if I go bankrupt tomorrow. If however I sign up to receive the iPhone with a service pack for an all-in payment of £29.99 per month, then the shop cares.

This is where the right ‘as-a-service offering’ can make a big difference. By blending the asset supply into the service delivery, the supplier’s vested interest in the buyer’s success goes up. The supplier is suddenly very interested in the buyer’s good fortunes, as the asset is now being paid for over a much longer period than previously. In the buyer’s eyes, the supplier has taken a bigger risk in the business performance and loyalty emerges. In the supplier’s eyes, the buyer has committed to a long-term business relationship. The level of trust, and therefore potential for forging deeper relationship bonds, is naturally heightened on both sides.

Enter the funder to resolve side-effects
So far so good, or is it? Trust and loyalty are now riding high but there are unfortunately two side-effects, and both are landed at the supplier’s door. The first side-effect: the supplier has to wait a long time to cash in the asset. The second side-effect: the supplier is relying very heavily on the buyer using the asset enough to recover the cost. A drop in the buyer’s business, means a drop in production output, means a drop in the usage of business assets, means a drop in the service payments the supplier will receive. This is a big risk for a supplier to take, and typically one that they are not adept at taking.

Enter the funder to resolve these two side-effects. Rather than maintaining ownership of the asset, the supplier can sell the asset to a funder on day one. Cash received, sale revenue booked, tick. If the funder is also prepared to take on true usage risk (i.e. that the buyer’s business will indeed use the asset at the forecasted levels over a long period) then this also shifts the second side-effect to the funder. Truly flexible payments to the buyer, under-usage risk offloaded from the supplier, tick.

As-a-service: win-win for supplier and buyer
With the funder assuming the risks, the supplier gets peace of mind knowing they will be paid immediately while the customer receives payment flexibility and increased operational efficiency. The customer can now pay only when assets are used (for example, pay per mile driven), pay only when businesses outcomes are achieved (for example, pay per successful medical test) or adjust the number of assets as needed (for example, acquire more assets during busy periods and fewer during slow periods).

Levels of trust are up, and an interdependent bond has been forged going forward. Not only between the supplier and buyer but with the funder also. All three stand to win if the buyer’s business succeeds. This is the power of the product: it is a proactive investment in the buyer’s future success, rather than a reactive lend based on the buyer’s previous financials.

It follows that ‘as-a-service’ is a powerful market proposition and demonstrates the massive potential for this kind of disruptor product in the market when compared to the traditional cash sale or lease methods.

DLL’s pay-per-use team can assist suppliers in offering their customers As-A-Service contracts to meet new demands, aligning to the customer’s business performance and increasing buyer-supplier trust.

Lee Thompson, Head of Pay-per-use Solutions Europe and Australasia, is speaking further to the relevance of funders in an aaS model at the World Servitization Convention, September 14-16, 2020. His keynote will be made available after the event to those who are interested.

It is extremely important to us to continue developing this capability and pioneer new ground, alongside suppliers that are taking steps on the servitization journey. I invite you to contact me to explore our options together.