Organisations changing the way they fund technology
Article by BidFin founder and director of strategic partnerships, Ross Simon.
Having the right technology has become mission-critical for organisations of all sizes in the digital economy. The pandemic restrictions have altered conventional attitudes to organisational structures, forcing businesses to rapidly deploy technology to accommodate new operating models, including supporting employees working remotely.
Adopting technology to facilitate these flexible work settings has helped organisations accelerate efficiency and productivity, reduce costs, and fuel growth. For many, embracing new technology has been crucial to survival, with research citing approximately 9 in 10 Australian organisations adopting new technologies during COVID-19 to support business continuity.
This strategic investment in the digital workplace continues its momentum, with IT spending forecast to grow 6.5 per cent, exceeding A$109 billion in Australia in 2022.
Prioritising the country's digital growth is underpinned by the Australian Government Digital Economy Strategy 2030, highlighting the importance of the technology industry to the economy. This encourages more organisations to invest in technology and embrace new processes or tools to adapt and expand market share with a competitive, connected offering.
Today, organisations have more options for IT procurement and are moving away from upfront technology investment, seeking more flexible financing options that meet specific business needs.
Services such as extended payment options make it much easier for organisations to plan and commit themselves to technology purchasing decisions without prohibitive upfront costs. This helps increase purchasing power while taking advantage of working capital to improve cash flow management.
The Australian Securities & Investments Commission (ASIC) reports inadequate cash flow as one of the main reasons organisations fail. Therefore, it's essential to ensure all IT procurement not only aligns with the business objectives but does not negatively impact cash flow.
This is how alternate technology financing options help organisations scale-up technology requirements while maintaining a healthy balance sheet.
Gone are the days when the CFO accepts a heavy upfront cost, only for the organisation to realise the benefit from the solution slowly over time. Taking advantage of flexible payment options as part of the overall solution not only improves cash flow, importantly, it increases the overall return on investment of technology solutions by allowing organisations to realise value in-line with cash out.
In short, organisations benefit by aligning payments with the deployment and consumption of technology. This presents less financial risk than a large IT investment, where the technology may sit idle until it can be deployed even though the cost is already absorbed without a return.
Furthermore, funding models such as recurring revenue funding, extended payment terms, software payment plans, and lease or rental payment plans empower organisations to align their technology investments with budget cycles and cash flows.
This avoids the business impacts of upfront technology payments, such as delays in implementing strategic initiatives caused by a lack of cash flow, which can ultimately impact the organisation's competitiveness.
Financing is no longer limited to hardware solutions, a shrinking market as a percentage of overall IT spend. It is now available for software, including cloud-based solutions, IT services and installation costs.
Approximately 83 per cent of technology spent in Australia this year will be attributed to software and services. The majority is services spend within that, which can often be the roadblock in an organisation's decision to digitally transform.
Being able to access low cost and easy to access payment solutions for upfront IT services not only accelerates the pace at which an organisation can digitally transform, but it also gives the services providers a solution to be paid faster and differentiate against their peers.
This more broadly provides Australian businesses with the ability to onboard digitally at a low cost of entry, which will naturally drive additional velocity through the IT supply chain.
Aligning technology payments with the value derived from IT makes sound business sense. Alternate financing provides convenient, flexible funding options to support organisations to address specific technology requirements. This means they can more effectively optimise balance sheets, control operating and capital expenditure, manage working capital, and protect margins.