Cash is King

To buy Efacs [ERP software] up front would have taken nearly £90,000 straight out of our cashflow. Rental allowed us to make this crucial business investment without affecting our bottom line,” says John Wilding, finance director for fibre optic test instrumentation manufacturer Perkin Elmer. “We had been using an ERP system owned by our sister company in the US but it was 1980s technology. We knew we had to upgrade but we wanted to save cash for other areas of our business like R&D,” he adds. Perkin Elmer’s optoelectronics plant is based in Wokingham with other sites in Cambridge, Beaconsfield and South Wales. According to Wilding, the company invests around 12% of its annual revenue (about £2 million) in R&D, and conserving cash for this is critical to the future success of its products. “Cash really is King for us. We expect the winners in telecoms to be those who invest the most in R&D through the tough times. We were going to buy new ERP outright, but Exel gave us the chance, through its financing partner CCL, to lease the software instead.” Towards the end of 2001 the firm had narrowed its shortlist of possible ERP vendors down to two: Infor:swan and Exel. “The next step was to appraise the two systems, from operational and financial perspectives. Exel came out on top on the operations side, but was five to six percent more expensive,” explains Wilding. “So we went back to them to try to get them to cut their price in line with Infor:swan’s – which they did.” Spread the cost At this time Wilding’s intention was to simply buy the software outright, but as part of the bargaining process, Exel offered the firm a leasing option. He says the firm then paid a 20% deposit up front that kick-started the finance process with CCL. This money was then refunded one month later. “We then had a very tough implementation schedule of just one month,” he adds. “It actually took six weeks from mid-December last year to the end of January this year.” That’s some feat nevertheless. The site is now using Efacs’ sales and purchase ledgers, stock control, work-in-progress and is just starting to look at the production planning module too. So what have been the benefits of leasing? Wilding replies: “Cash is now our main business driver. We’re simply spreading the up front costs over a longer period. It does mean we end up paying more for the system but it’s giving us the crucial breathing space we need to free-up cash for other areas of the business.” CCL is not alone when it comes to helping manufacturers finance their IT. Firms like Syscap, IBM Global Financing, GE Capital, Genesis Capital and all the major hardware vendors such as H-P, Dell and Compaq offer similar packages. And don’t forget the more traditional, asset-focused high street lenders: Barclays, Mercantile, Lombard and Forward Trust (HSBC). “The problem here,” says CCL’s md Suki Gallagher, “is making a bank understand why your company needs to invest in new software to grow. These traditional lenders tend to focus on hardware – some will only lend you money for investment in hardware products, or at best a 50/50 split between hardware and software. “We use a consultative approach. We understand the stresses and strains of software firms and their end-users and we want to make it easier for firms to afford new software – that’s our niche really.” She states that 80% of CCL’s business now comes from software vendors and 20% direct from end-users, but the latter is growing fast. “In the future nobody will pay for their software upfront with cash. It’ll follow in the footsteps of the car industry where cash buying is in real decline.”