For manufacturers and dealers in every industry, competition is fierce. Strategic choices about how to keep stock moving, improve cash flow and purchasing power, and offer customers greater flexibility can make a huge difference to the bottom line and give businesses significant competitive advantage.
Leasing is a crucial part of the equation, with a range of solutions available to fund equipment as it moves down the supply chain from manufacturers to dealers to end users. But with so many options on the market, how do you find a trusted equipment finance partner that’s right for your business?
Global outlook, local knowledge
Today, borders are dissolving as businesses expand their enterprises internationally, trading in a global economy with complex supply chains, and comply with regulations across multiple jurisdictions.
Navigating this environment demands trusted partners with a global outlook, who can support businesses to be flexible and resilient in the face of economic challenges, and adaptable to take advantage of the world of opportunities at their fingertips.
But local knowledge is just as important. Finding a global asset finance partner with local teams on the ground that can offer tailored wholesale and retail asset finance solutions for each market and understand the day-to-day realities of doing business is crucial to success.
Unrivalled industry knowledge
Equipment manufacturers and dealers know their industries inside out and a good asset finance partner must too. One equipment finance solution does not fit all, and each industry requires tailored options and support.
In the construction industry, for example, local authorities and the private sector are busy building cities fit for the future. But fluctuating payment schedules, rising material costs, and supply chain challenges means being able to plan investments is crucial. Asset finance can help, but only if businesses partner with a provider that has top sector experts on the team that can tailor bespoke working capital and financing solutions to meet client needs.
With a finger on the pulse, the right asset finance partner will have specialist knowledge of your operating environment, industry trends, challenges, and opportunities, as well as the individual needs of your business.
A one-stop-shop
Leading manufacturers and dealerships are streamlining operations and simplifying supply chains. Rather than dealing with multiple suppliers, complex invoicing and extra administrative burden, many are seeking a one stop shop for equipment finance, with tailor-made asset finance solutions for both clients and distribution networks, and options for every stage of the asset lifecycle, from commercial agreements to private label agreements, strategic alliances, and Joint Ventures.
For example, Floorplan Finance can allows manufacturers to offer extended dealer payment terms for the purchase of inventory, enabling better cash flow, faster order fulfilment, and optimised asset management.
Finding the right working capital and financing solutions can drive sales growth and promote long-term customer retention, through point-of-sale financing options, ranging from simple white-label programmes to fully integrated in-house financing operations. With the right partner, the result is seamless customer experiences, improved operational efficiency, and better financial control.
Why BNP Paribas Leasing Solutions?
- Global outlook, local knowledge: BNP Paribas Leasing Solutions operates directly in 17 countries, supporting partners with a local presence, and those operating multi-market, international businesses. We ensure our partners benefit from a global outlook, executed locally.
- Unrivalled industry knowledge: With over 70 years’ experience, we are proud of the depth of our industry expertise. Today, we have more than over 50 international partnerships across Europe, supported by a team of experts in construction, agriculture, green tech, healthcare, IT, transport and materials handling, and more.
- A one-stop-shop: We have tailor-made solutions for manufacturers and their distribution networks across every stage of the equipment lifecycle. We’ve streamlined our vendor finance offer so our partners can streamline and grow their businesses too.
- Strong financial stability: BNP Paribas Leasing Solutions is a subsidiary of BNP Paribas, which was recognised by Euromoney as the ‘World’s Best Bank for Sustainable Finance‘ in 2023. With our strong financial record and diversity of expertise across the bank, our partners can be confident we will help navigate the business challenges that arise, no matter how complex.
It’s fair to say that for most businesses, 2023 has been a year of evaluation and re-evaluation. The global operating environment continues to change at pace, with energy prices, supply chain disruption, and inflation keeping organisations on their toes.
On the whole, this has made the business community stronger, more adaptable, and more efficient. We’re all better at determining what delivers value and leaving behind anything that doesn’t.
Both consumers and businesses will approach 2024 with caution, but I hope the new year can bring some cautious optimism. Sometimes it’s the greatest challenges that produce the most important change. That’s certainly the case with the progress being made towards the low carbon, circular transition, which thankfully is also intensifying, both because of and despite economic stressors.
That alone should give us cause for hope. So, how do we keep up the momentum and what opportunities might lie ahead over the next 12 months?
GEOPOLITICAL UNCERTAINTIES FUEL A SHIFT TO CLEAN ENERGY
Conflict in Russia and the Middle East has caused devastation for millions of people who live the daily realities of war. It’s heart breaking to see the ongoing impact on human lives.
These conflicts have also had a significant influence on global fuel prices and placed more emphasis and urgency on the transition to alternative energy sources. Energy resilience and autonomy is now a top priority for governments, including the EU, which has ramped up efforts to secure supply.
Today, the energy transition is not only an ecological imperative but also an economic one, which despite the circumstances, can only be good for progress. The demand for clean energy infrastructure is increasing, with financed volumes for energy-generating equipment reaching €1 billion last year, according to recent data from Leaseurope.
The leasing sector will have an important and growing role in enabling the adoption of clean energy tech and infrastructure by ensuring it is an accessible and sustainable alternative to the status quo. This will require flexibility and innovation from lessors who will need to find solutions to finance new asset classes and offer customers value-add services as part of these deals, aiding the shift away from traditional cash ownership towards a service-based, circular approach to asset management.
AS PRODUCER RESPONSIBILITY SOLIDIFIES, THE SECONDARY MARKET WILL FLOURISH
Producer responsibility is another ever-present theme in EU regulation, with manufacturers being asked to “take care” of their products long after they leave the factory. This regulatory burden may put new pressure on manufacturers to be responsible for the end-of-life of their products, but it also has a whole host of benefits. Not least of these is that it has promoted a shift towards product-as-a-service (PaaS) models, which inherently draw on the principles of the circular economy, a key component of the sustainable transition.
When a manufacturer retains ownership of its product throughout the entire lifecycle, it can gain a much deeper understanding of its component parts, likely wear and tear, and the residual value of used goods. Shifting to a service-based approach also allows producers to develop new revenue streams, by offering customers valuable services at different stages of the lifecycle – from digital asset management to data insights to sustainable and secure asset disposal.
As a result, we’re seeing a growing interest from vendors seeking to secure assets at the end of their first useful life and aiming to build a strong stock base of used products. This allows manufacturers to respond to the increased client demand for used or refurbished assets to form a mandatory percentage of bids as part of ESG-aligned procurement processes, regulatory compliance, and budget considerations.
Leasing companies can play a significant role in the development of PaaS models by creatively collaborating with vendor partners to ensure asset responsibility is retained throughout the lifecycle, related services that promote reuse are integrated into the product offer, and customers are supported to adopt the principles of the circular economy across their operations.
A DIGITAL TRANSITION IS ALSO UNDERWAY AS ORGANISATIONS MANAGE COSTS
Technology has been another key theme in 2023, and despite the ongoing global uncertainty, this year has seen a resilient demand for business equipment, particularly for investments that are core to business operations.
Rightly, businesses are making strategic decisions based on how critical investments are to growth, with technology a clear driver of both efficiency and competitiveness.
In 2024, progress with artificial intelligence (AI) will undoubtedly continue. For the leasing sector, it has exciting potential to improve customer experience by speeding up transactions like credit approvals and making services like fraud detection more reliable and consistent.
Leasing can also support customers to accelerate digitalisation, reducing upfront costs and allowing them to take advantage of the application of the technology. These days transitions come in many guises, but the digital transition will be crucial in supporting organisation to grow sustainably.
Time and time again, we see the leasing industry playing a key role as an enabler, supporting businesses to future-proof their operations and contribute to a better tomorrow.
We have a huge opportunity ahead of us to do more and I think that calls for a healthy dose of cautious optimism.
Isabelle Loc, Chief Executive Officer, BNP Paribas Leasing Solutions
When the European Commission launched the landmark EU Green Deal in December 2019 it set out a bold plan for the continent to transition to a sustainable economic future. Described as “Europe’s man on the moon moment”, in broad brush strokes it outlined its ambition to be the world’s first carbon neutral continent by 2050.
Four years on and the road map outlined in the Green Deal has delivered significant change, and today, Europe undoubtedly leads the world in the transition to a low carbon, circular economy.
But as climate change accelerates and we inch ever closer to the 2050 deadline, one thing is clear – unlike the moon landing, Europe’s final destination is still unknown and if the Green Deal is to be an equally historic success, the devil will be in the detail.
WHAT IS THE EU TAXONOMY? HOW DOES IT LINK TO THE TRANSITION TO A CIRCULAR ECONOMY?
The EU Taxonomy, Europe’s sustainable finance framework, is the place to dig into that detail. It underpins the Green Deal by setting a standard for economic activities that can be classified as environmentally and socially sustainable. It includes the transition to the circular economy as one of its key objectives and could help to unlock the trillions in finance needed to make circularity mainstream.
A recent taxonomy policy development has circular economy enthusiasts talking, with new guidelines that set out criteria to determine whether certain economic activity makes a “substantial contribution to the transition to a circular economy” – a transition that could be worth €1.8 trillion to the EU economy by 2030.
FROM A SIDE NOTE TO A KEY THEME
What caught my attention is that product-as-a-service (PaaS) has re-emerged as a key theme for the EU and an important lever for achieving the circular transition.
In 2020, PaaS was given just a passing mention as part of the 35 actions set out in the Circular Economy Action Plan (a major building block of the EU Green Deal), but through this taxonomy update the EU has signalled that it will prioritise PaaS as a mechanism to achieve the circular economy and, crucially, give organisations the criteria they need to implement it successfully.
The new technical guidance defines product-as-a-service models as “providing customers with access to products through service models, which are either use-oriented services, where ownership remains with the provider and the product is leased, shared, rented or pooled; or result-oriented, where the payment is pre-defined and the agreed result is delivered (i.e. pay per service unit)” (pg. 67).
It goes on to list a range of manufactured product groups that fit the bill, including textiles, electronics, furniture, and more (pg.67). This alone is a welcome step towards acknowledging the breadth of possibility that PaaS models can deliver.
However, the list is far from exhaustive, with medical tech, agricultural machinery, construction equipment, and automotives all notable omissions. Most, if not all, manufacturing sectors are being transformed by digitalisation at a rapid and increasing rate, meaning products become obsolete overnight and extracting the maximum value from resources, via circular models like PaaS, is paramount. The guidance will surely be broadened in future updates to capture the endless opportunities that as-a-service models can offer a multitude of industries.
The guidelines also set out criteria PaaS models must meet to be considered to be making a substantial contribution to the circular economy. First and foremost, the activity must “provide the customer with access to, and use of product(s), while ensuring that the ownership remains with the company providing this service, such as a manufacturer, specialist or retailer” (pg. 67).
THE LEASING INDUSTRY’S ROLE IN CIRCULAR TRANSITION
This is a call to arms for the leasing industry, which has an important role to play in helping organisations to implement systems that aid the circular transition. There is an opportunity here for lessors to build on our expertise in offering customers residual value pricing on assets (which inherently fosters the preservation of assets and their value) to offer a broad range of services covering the full lifecycle of an asset from asset management tools to data analysis to in-life maintenance support and sustainable end-of-life disposal.
Interestingly, the guidance also states that both a longer useful economic life through, for example, repair/refurbishment, and greater usage intensity (i.e. ride share services) are positive outcomes to be derived from PaaS models that will promote the transition to the circular economy (pg. 68). Clearly, the results for each of these approaches is very different because the more intensely a product is used, usually the shorter its life will be.
This is a powerful motivation for organisations to move away from traditional ownership models and work with lessors, who advocate for an optimum life of an asset rather than sweating an asset beyond its useful life, resulting in low value components with little opportunity for reuse. When managed properly, assets can deliver maximum value for organisations in their first lifecycle, be sustainably and securely refurbished and go on to fuel the second-hand market with high-quality products. These are the hallmarks of a truly circular economy.
Only three years after PaaS was just a side note in the EU Green Deal, it is now explicitly included in EU taxonomy, which is a hugely positive step forward. There’s still lots to do to create a framework that supports a truly circular economy and give investors and businesses the tools they need to implement circular solutions.
Setting these parameters will help the EU scale up sustainable investment, prevent greenwashing, and support organisations to transition to a more sustainable, future-proof way of doing business. Get this detail right and the sky really is the limit.