This year’s panel addresses critical industry issues and trends and their impact on financing.
Our 2019 Virtual Panel series concludes with a topic near and dear to every dealer’s heart, and pocketbook””leasing. Six leasing company executives, each highly visible at imaging industry events, responded to our questions about declining print output and falling hardware prices, financing managed IT and solutions, their ability to handle e-signatures, and more. Later this month, the panel will weigh in online at www.thecannatareport.com about the acquisitions activity occurring across the channel, as well as what’s going to happen with interest rates.
This year, we are featuring Phil Buysse, senior vice president, division manager, office equipment, U.S. Bank; Nick Capparelli, managing director, LEAF; Fred Carollo, office products originations leader for Vendor Equipment Finance, TIAA Bank; Michael D’Errico, director, equipment finance, office imaging unit, CIT Group Inc.; Jennie Fisher, vice president and general manager, office equipment group, GreatAmerica Financial Services Corp.; and Rob Parker, senior vice president, equipment finance, Wells Fargo.
CR: How are your respective firms adapting to declining print output and falling hardware prices?
Buysse: Our business continues to grow, and our average transaction size actually increased in 2018. That said, we are seeing more printers and A4 devices in transactions and a very weak secondary market for this year, so we are very cautious with our residual values. This allows us to provide a consistent and stable offering to our dealers.
Capparelli: Office products dealers face huge financial and logistics challenges as they adjust to the decline of traditional business opportunities. Not only that, but they’re also faced with a transition from a traditional business model to a hybrid that includes subscription revenues. Many forward-thinking dealers are reacting by expanding into IT, managed services, and 3D. They’re also working to take greater control of customer breakrooms and moving into other growth areas. Whether they’re developing capabilities in-house, partnering with a leading regional technology provider, or acquiring companies with the capabilities they need, we’re here to support this shift with a wide variety of products and services. That includes nontraditional support, including software and service-only financing, service bundling, and subscription-based transaction models. We’re also offering the LEAF CapitalAlliance, which provides dealers an integrated source of inventory financing, fleet financing, growth capital, and other resources to support a successful shift to new business models and opportunities.
Carollo: TIAA Bank is following the same course as the rest of the office products industry. The industry has expanded its offering to offset the decline in print. We are financing all that dealers are offering such as software and solutions. This strategy has helped us experience growth year over year.
D’Errico: As manufacturers and dealers expand into more solutions, we are building new programs to support them. We also realize we have to find new ways to help our dealers grow revenues, streamline operating expenses, and enhance the customer journey. This is a big part of our value prop in terms of platform integration, which consists of technology, process, and people.
Fisher: What?! The print market is declining? You could have fooled the folks at GreatAmerica! In all seriousness, we do understand that the market is flat to declining; however, we are still seeing tons of opportunity in the advancement of technology and solutions. Though IT services are not moving into our dealer community as quickly as we thought it would six to seven years ago, there seems to have been a resurgence of interest, particularly in the area of security. With cyber security being a primary concern for many businesses, this has created a lot of opportunity for the dealer community. There is also increasing opportunity around financing solutions in general.
Parker: As the equipment mix continues to change, we see some balancing out effects that are keeping the average deal size relatively flat. There is a different mix of production-print machines being sold at higher prices than the A3 devices, combined with lower priced but higher unit volume A4 devices. While the need for printing output might be declining, the need for additional products such as software, networking equipment, and other information technology solutions are on the rise. We are focused on meeting the changing financing needs of our dealers and end user customers.
CR: Given that the revised FASB guidelines for commercial entities went into effect in 2019, how do you intend to handle bundled contracts? Will the dealer need to provide the lessee the breakout for service and equipment, and will the dealer need to provide back-up to support it?
Buysse: We allow the dealer full control of the communication related to bundled contracts, as well as the decision of whether to break-out service, or not. The FASB guidelines allow the customer to estimate a market rate if the actual service rate is not available.
Capparelli: Identifying embedded leases for services can be a tricky thing, so we’re advising dealers to pay close attention to whether they or their customer has the right to direct use of assets involved in those services as specified by ASC 842. Issued by the FASB in February, ASC 842 details new standards for lease accounting. Once dealers have made a determination based on this guidance, they should note the breakdown in their own and lessee documentation. Having backup to support these breakdowns is always important but especially so in cases where both parties could be considered to have the right to direct use of assets that are a part of service offerings, such as in the case of cloud services.
Carollo: We have been conducting training for our vendor partners throughout the country to help with the education of the changes and to develop strategies specific to their needs. The end-user will need to know how much of the transaction is being financed. That information will come from us or from the dealer to the end-user. In most cases, it will be provided by the seller to the end-user since it is critical that this information is conveyed correctly.
D’Errico: In coordination with our dealers, we have the capabilities to provide the information to the lessee as requested.
Fisher: No specific rules define the ability to place restrictions on documenting a contract with service included on the equipment. Contracts that include a single payment for equipment, service, and supplies will continue to be accepted and the end-user will be the one responsible for determining if they choose to treat the monthly spend as part of their operating budget.
GreatAmerica will continue to handle bundled contracts in the manner in which our dealers prefer. We will provide a breakout of the equipment and service to the lessee only if requested by the originating dealer. If requested by the lessee, we will direct them back to their dealer.
Parker: We will continue to service our bundled contracts as we have done before. It is the customer’s responsibility to determine the components of the lease based upon an independent, arm’slength assessment of the transaction.
CR: Managed IT has become an added service that many dealers are offering. How are you treating it from a finance perspective?
Buysse: We have expanded our technology offering to allow for a total solution to be contracted through one document with terms that specifically accommodate traditional print equipment, networking equipment, and software. In addition, managed network services can be bundled in the same way that traditional maintenance has been billed. We are also providing customers with better billing technology”” including invoicing via email and an automated detailed spreadsheet invoice product”” to better manage the wider scale relationship dealers are now providing.
Capparelli: Managed IT can have a lot of moving parts in terms of hardware, software licenses, and services, but that doesn’t mean customers should have to deal with that complexity at any level, including having to manage cash flow around fragmented financing agreements. After all, getting away from unwanted complexity to focus on core business is a huge part of why they chose managed IT in the first place. Managed IT is sold as a solution, so financing should be seamlessly integrated with that solution, just like any other part of it. We support solution selling with bundled financing for everything found in the office, both traditional and virtual, and we provide options that help dealers navigate the shift to more of a subscription-based business model.
Carollo: Managed IT is typically treated as a pass-through item just like service and supplies have been throughout the years. In specific situations we are providing financing of these receivables for certain dealer relationships. Managed IT financing does create an increased reliance on our vendor partners from our perspective. That is something to consider from a lessor’s position.
D’Errico: In our equipment finance group, we support the office imaging and technology markets and have the expertise to support managed IT. We see these markets merging more every day as our dealers are selling more solutions and services. What is financed and pass-through varies on the dealer’s offering. Our strong FlexAbility system, including billing, allows us to finance and also bill pass-through services on our dealers’ behalf in one consolidated, easy-to-understand invoice, delivered either electronically or in print, with the ability to remit and auto-cash post to multiple parties.
Fisher: One of our greatest values is our capability to bundle. Managed IT financing fits right in that sweet spot. We finance the hardware and the performed professional services, and pass-through service dollars to our dealers on a monthly basis. We offer three variations of our hardware-as-a-rental (HaaR) program to support the go-to-market strategies of our dealers and to allow for variable pass-through. Through these programs, technology can be refreshed and equipment add-ons can be executed without requiring multiple supplements or addendums. The rental agreement allows the dealer to maintain control of the transaction through the entire course of the agreement end of term.
Parker: There are many different flavors of managed IT services.”¯We work with the dealer to develop an approach that makes sense for the products offered, as well as the dealer’s and customer’s needs.
CR: What requests for financing have you seen in dealers that are expanding their solutions footprint? Do you see financing options for hosted solutions becoming an option?
Buysse: We are seeing more network equipment in transactions, and we are seeing requests to more seamlessly include software in transactions. As to the financing of a hosted solution, that may be a possibility if the industry transitions to a true subscription solution. It is yet to be seen if this will become an accepted solution, and where it might first emerge in the market.
Capparelli: Hosted solutions are definitely a growth area for office products dealers, and we already offer financing options for them, whether alone or part of a wider solution. The key thing dealers want from us as they expand their offerings is the same thing their customers want from them: integration. Businesses just don’t have the resources to manage these increasingly complex and interconnected systems ““ that’s what they’re looking to dealers for. So, we put a focus on enhancing that integration with full-solution financing that reduces administrative burden and improves cash flow.
Carollo: Financing hosted solutions is more of a possibility as demand for it grows. The concept of selling a solution versus a product is an obvious direction the industry is moving toward. Lessors are becoming an invoice-servicing entity, in addition to a traditional finance company. Dealers have expanded into IT, managed IT, water, and electrical, so we are seeing requests for all of these offerings from an invoicing and financing perspective.
D’Errico: We’re seeing managed IT and cloud services and branding and marketing, as well as security. We have put together technology programs for hosted solutions to meet changing market conditions.
Fisher: Our request for financing of solutions is steadily increasing. I like it, as it often forces us to get outside our comfort zone. The majority of the requests are centered on managed IT services and financing of software (on premise, with a push toward hosted). We have certainly seen an increase in the number of dealers offering document management solutions.
There is a buzz in the industry today around a flat-rate billing option (Konica Minolta’s OneRate Program, NEXERA’s device-based billing (DBB), and our seat-based billing (SBB)). We have developed a program around SBB, and are currently developing documentation around a flat-rate option.
In my travels this past year, I have learned about some interesting solutions dealers are offering that are completely outside their core (i.e., electric brokering, lighting as a service, water, key makers). Interesting right? While I do not see these solutions becoming an incremental service for many in our industry, I do find them very intriguing.
One area I do get excited about is the opportunity to help dealers looking for finance support for their organization (acquisition assistance, portfolio purchases, leasing of company assets, etc.) and we are pleased to support their requests when it makes sense.
Parker: As a bank, we are comfortable with leases and loans, whether secured or unsecured, and we are working with our lines of business to ensure we have the financing solutions our customers need. However, there is a different risk assessment with products that are sold on a contract basis without Article 2A protection.
CR: What is your ability to handle e-signature demands and requests?
Buysse: We accept all of the primary e-signature solutions for standard business. We still prefer a wet-ink signature for large transactions; however, we have the technology to handle those electronically in a manner that “vaults” an electronic original. This approach requires us to take control of the documentation process, which many dealers prefer to manage themselves. As the documentation process evolves, we will eventually electronically sign, vault, and store all agreements in a way that protects all parties better than today’s methods.
Capparelli: Signature requirements have been one of the most persistent and frustrating obstacles to achieving a fully digital financing process. But it can be overwhelming to vet all the options available and choose the one that’s right for your application. Having been through our own extensive vetting process, we’ve chosen DocuSign e-signature technology, which enables dealers and customers to conduct business anywhere, using just about any connected device. This has significantly reduced friction across all selling channels, improving sales efficiency and results. A significant percentage of our business today is completed utilizing e-signatures.
Carollo: We do support and process e-signatures throughout all of our equipment finance groups. E-signature provides ease of execution for all involved and adds a higher level of integrity to a transaction, which are positives for all parties.
D’Errico: We have e-signature capability, which falls in line with our approach of making things more efficient and easier. Whenever you do things at the point closest to the customer, you’ll achieve a better customer experience. This plays well into our big picture integration, making it a seamless process, beginning with point of sale all the way to lease disposition.
Fisher: GreatAmerica offers DocEase (powered by AdobeSign) as a means of offering e-signature capabilities to our customers. We are comfortable accepting DocuSign and other solutions after review of the offering, and confirmation that an audit trail for the signature can be provided. Our ability to help dealers move in this direction sends a strong message to their customers that they provide high-tech solutions and understand technology’s benefits. It also provides efficiencies in executing agreements through a simple and paperless system that customers can enjoy, and can reduce sales time and expense when closing transactions.
Parker: There are two approaches to e-signature: One party, either the lessee or lessor, executes electronically; and dual party, both the lessor and lessee, are executing electronically.”¯We support both approaches, yet we find more requests for lessor e-signature, because it can simplify the sales process.”¯Whether the finance company signs electronically is a little less important.”¯We need to make sure the lease document contains the appropriate language.”¯Once confirmed, it is pretty easy to implement.
CR: In a world where technological advancement is critical to gaining operational efficiencies, where you do you see integrations among you, the dealers, and the end-lessee going?
Buysse: Hopefully, this will continue and standardize a bit more. Almost all manufacturers and dealers require some type of integration to manage bundling and back-room support. Front-end systems used to approve and document the transaction will become much more accepted in the coming years. Customers are also demanding online access to more than just a static invoice, but data they can work with and manipulate. By providing online access, email invoicing, and a detailed spreadsheet invoicing, we can accommodate these emerging customer needs.
Capparelli: Demand for increased program visibility and communication between finance companies, dealers, and lessees is only going to mount in the months and years ahead. To continue serving dealers and lessees at a high level, finance companies will need to enable closer partnerships, greater efficiency, and a better customer experience. They’ll do that by directly and seamlessly integrating with dealer ERP systems using easy-to-implement APIs that provide transparent access to lead, application/documentation status, program performance, invoicing, payment, and other data. By doing so, the finance company can aid in cutting back office costs and streamlining shared workflows to promote greater backroom efficiency at the dealer.
Carollo: Many of our current IT projects and enhancements are in this area. We are focused on creating internal efficiencies with technology and integration opportunities for our dealers. We are also streamlining channels for end-users and our dealers to transact business with TIAA Bank from cradle to grave, utilizing technology.
D’Errico: From a lessee standpoint, our goal would be to have it more like a consumer retail experience: quick and easy. Our dealers and our systems need to be integrated so data flows in real time””and with no manual touch””through the entire lifecycle of a transaction. We believe this will increase our vendors’ revenues, while also improving their operating expenses and customer journey. This will require a shift in approach for our dealers in how they are doing business today, as opposed to being bogged down by outdated paradigms.
Fisher: We continue to evaluate opportunities to increase and enhance our current integrations with leading ERP and CRM providers. While our options today focus primarily on our dealers, more attention is being placed on the future needs and desires of the end-user. We continue to see more and more of a need for online payment capabilities and self-service options for lessees. Another area of focus is evaluating how we can utilize all of the data of which we have access to identify trends, predict market shifts, develop leads for dealers, and identify service opportunities. Ultimately, our mission is to help dealers scale their businesses by reducing or eliminating manual steps traditionally required.
Parker: The higher the degree of integration, the more efficient the processes, so we are strong advocates for integrating where it will help everyone involved.”¯With the combination of the former GE Capital and current Wells Fargo officetechnology businesses, we have a rare opportunity to expand the footprint of several exceptional applications.”¯For example, we launched our leasing source dealer application to the Wells Fargo platform in fourth quarter of 2018, so dealers now can benefit from the improved process flow and automation.
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