Asset finance companies are facing new types of risk as they adapt their business models to servitization.
Customers are keen to adopt ‘pay-on-use’ services, but funders and suppliers will need to ensure that the deal remains profitable by maximising the utilisation of assets during their first use and also through developing business models focused on the circular economy to extend their working life and generate value from reuse, refurbishment and recycling.
Lee Thompson, head of pay-per-use solutions, Europe and Australasia at DLL, explained: “Someone has to take the risk that an asset will be used enough to pay for itself.
“We call this the ‘value hill’; the more an asset can be used at every stage of that hill, the more revenue that asset generates. Ultimately, this is about the supply side of the chain working together to make sure assets are fully optimised, thereby reducing the risk that the asset is underutilised by customers and therefore underpaid.”
There are a range of examples of pay-per-use services where the value hill could be implemented, ranging from pay-per scan in hospitals to pay-per-cup for coffee machines in garages.
He added that success is achieved by focusing on two key outcomes.
Firstly, funding structures must align with customers, and secondly the vendor must be able to recognise the sale of an asset.
A detailed overview of the value hill and servitization models is available in this exclusive video, courtesy of global automotive, consumer and equipment finance software company White Clarke Group.
You can also view and download our latest report on servitization here.