The pace of technological change has increased markedly in the last decade, fuelled by a globalised marketplace and reduced cost of entry to international markets, allowing even small companies access to global opportunities. For businesses to remain competitive across the globe it is essential that they keep up to date technologically and intensify their pace of innovation and technological change.
The latest research from Siemens Financial Services (SFS) has identified a need to invest in new-generation technology with respondents across the world reporting that they are using innovative finance to seize market opportunities through digitalisation and automation in order to meet key sector challenges. Brian Foster, Head of Industry Finance at SFS in the UK discusses some of the equipment financing techniques being utilised by competitive businesses across the world.
Total Cost of Ownership (TCO) financing
TCO is a comprehensive form of financing which integrates the full costs of using technology, not just its acquisition price. Such financing agreements typically comprise service, software, maintenance and consumables, as well as the simple technology acquisition. Opting for a scheme that incorporates all aspects of investment provides organisations with a financially reliable package that – by including the digital reporting and analytical elements – ensures running costs will not escalate unpredictably over the technology’s lifetime. Indeed, this approach – providing a very clear and transparent ‘cost-to-use’ – will often highlight when it makes more financial sense to upgrade technology rather than continue to ‘sweat’ an older system.
Forward-thinking finance managers want to ease some of the guess work involved in new technology acquisition. Performance-based financing allows a business to pay for a defined set of business outcomes, rather than simply paying to use technology regardless of the outcomes it delivers. In such cases a specialist financier with in-depth knowledge of the sector can make an educated assessment of the possible benefits of technological investment, including improved profit and productivity, savings, efficiency improvements, etc., and build a financing agreement where payments are predicated on the level of business benefit delivered. This effectively transfers the risk associated with delivering outcomes to the technology provider and financier.
Energy-efficient technology financing
Using energy-efficient technology can reduce a company’s carbon emissions as well as energy-use, which typically translates into pecuniary savings. It is therefore unsurprising that take-up of energy-efficient measures is a growing trend among organisations across the world. However, such technologies are often costly to implement and may not seem a feasible acquisition to businesses, especially SMEs. A financing package tailored around efficiency savings can offset investment costs and render monthly payments manageable. Schemes exist where specialist finance providers can match the financing period and the level of monthly payments to the projected energy savings.
This makes the investment effectively zero cost for an organisation. Once the financing period is over, the organisation then reaps full energy savings from the more energy-efficient technology. Technologies financed in this way include: building energy management control systems; biomass heat generation; variable speed drives in industry; heat recovery technologies; and many more. Electricity generation, at the large and small scale is also benefiting from innovative financing tools. These range from major project financing arrangements for, say, wind farms, through to solar photo-voltaic installations on a single building or piece of land. The common theme, however, is that the financier has to bring specialist knowledge of technology, government incentives and practical equipment capabilities to provide competitive and appropriate financing packages.
Future proof financing
Though no one knows what the future holds that doesn’t prevent businesses from being prepared. The pace of technological change has increased dramatically over the last decade and it is uncertain what leaps in advancement may be achieved over the next ten years. For businesses looking to upgrade equipment, the prospect of investing in a piece of technology that might be outdated in a few years is a deterring one.
However, the majority of technology developments are likely to be improvements in digitalisation, which allows technology systems to operate in a smarter, more intelligent way, with automated performance fine-tuning, predictive maintenance triggers, and so on. With future-proof financing, financiers’ specialist market knowledge allows them to identify the need for incidental or incremental upgrades and factor this in to a financing agreement.
These are just some examples of the financing packages being used by organisations to invest in the digital age and propel their business forward. The key element linking each package is the presence of a specialist financier, with the specific sector knowledge to tailor schemes to an organisation and make accurate and reliable assessments of their needs and the benefits of technology acquisition. For businesses hoping to invest in digitalisation it is essential to partner with the right financier who can provide a scheme that suits each idiosyncratic investment situation.
By Brian Foster, Head of Industry Finance at SFS