The transition from traditional transactional relationships has been ongoing for over 10 years. The switch from either direct sale of PBX systems or the leasing of the same to the customer has meant that the channel no longer benefits from large cash-flow injections.
Of course this has an adverse effect on both the reseller and the lease company. A proportion of the channel are still utilising leasing to support the provision of hosted solutions to their customers. This seems to be counter-intuitive to the lease company as the proportion of the cost that is incurred at the start of the contract is minimal.
In the PBX world an accepted position was that the solution would be valued at £1,000 per user/handset. This formula works when providing a PBX on site, perpetual licences on the PBX, handsets, perpetual licences on the handsets and significant professional services/ implementation.
But in the provision of cloud based solutions, arguably in the majority of models the up-front costs are limited to desktop handsets and ancillary connectivity equipment. Perpetual licences have been replaced with ongoing subscriptions.
This has not stopped the reseller demanding upwards of £1,000 per user/handset from the lessor, with that company happy to support as they have seen the size of the telecoms market reduce significantly and they still want to transact.
For the lease company the golden rule is that they should not, knowingly, be financing future services to be delivered. The reasoning for this simple, under contract law a customer does not have to pay for a service it is not being delivered, therefore putting the lease company at significant performance risk. Should therefore a lease be entered into for a hosted solution at £1,000 per user/handset the reality is this includes future services to be provided.
Are the lease companies therefore knowingly party to risk that these contracts carry or is the financial services sector not understanding the technology provided? It could be one or the other, or a combination of the two.
What does this mean in reality for the reseller? At the least it reflects a high amount of risk in the future business model of the reseller. The majority of lease companies that support the channel are regulated by the Financial Conduct Authority and a significant change is about to come into force: Consumer Duty where it is vital that the customer receives fair value. The question to be asked is does the financing of small quantities of hardware at over £1,000 pr user/ handset deliver fair value for the customer?
It is time for the reseller to start future proofing their business and look at alternative ways in which they can generate cash[1]flow from customer contracts on a fair value basis. Liquid Subscriptions allows resellers to reduce risk within their business model whilst offering customers fair contracts and generating cash-flow to cover cost of sales at the inception of the agreement.
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