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Navigating Inflation with Equipment Financing

Hardware Users Are in a Tricky Spot

On the whole, enterprise hardware prices have been fairly consistent over the past couple of years. Interest rates were low to encourage greater economic activity, and organizations had more cash on hand than ever before. As a result, spending on equipment such as automation solutions, barcode scanners, tablets and phones and countless other devices increased.

Today, the picture looks quite different due to the well-known labor shortages plaguing manufacturers and distributors and the dramatic growth of non-store retail sales. According to Forbes, there were more open positions for warehouse and transportation workers than ever before last year. Fast forward to Q1 2022, and 73 percent of businesses in these industries, according to a the report State of Warehouse Labor: Staying Flexible in 2022, say they’re having trouble attracting employees (up 26 percent from 2021). While the unemployment situation is improving, it has left organizations scrambling to catch up — or shift gears entirely.

One solution has been to increase investment in robotics to reduce reliance on physical labor on shop floors and to accelerate and streamline production. However, budgeting issues and record-high inflation are getting in the way of companies achieving this goal. While the Federal Reserve is actively working on stabilizing inflation, it’s clear that inflation will continue to be a thorn in companies’ sides for quite some time.

Organizations looking for enterprise hardware and automation solutions are seeing multiple price increases on those products in short periods of time — in some cases, those increases (around a few percentage points on average) have occurred even after a purchase order was issued. The ongoing supply chain issues, increased demand for goods, the cost of manufacturing and significantly higher shipping costs have all contributed here.

Financing Provides a Single Solution to Multiple Challenges

Asset-conscious organizations may at first be leery when it comes to financing enterprise hardware and robotics equipment, particularly as it adds another layer of risk in an already complex financial environment. However, in today’s far more complex technological and supply chain environment, the benefits rapidly outweigh and justify those risks.

  1. Companies are protected from rising rates. Rates are expected to rise as the Federal Reserve looks to update policy to curb price increases. By financing, companies can lock in the interest rate on their equipment, typically for a few years depending on the provider used for the program. When rates do increase, the equipment financing itself won’t be impacted. The rate for equipment financing will depend on what is needed and the strength of the organization’s credit.
  2. Enterprise technology needs are consolidated. Many financing partners allow hardware to be bundled with related software as well as services such as maintenance and upgrades. Combining these core elements into a single program helps companies reduce the number of vendors to manage, reduces overall cost and accelerates implementation and time to value.
  3. The impact of hardware on cash flow is reduced. Instead of making a capital investment in enterprise hardware, software and services, companies make a monthly payment that’s based on what is included and their credit. This helps companies keep more of their cash on hand for other strategic or operational needs.
  4. Technology is refreshed more strategically. Purchasing equipment outright comes with its own challenges such as depreciation, managing repairs and replacements, and eventually upgrading the entire enterprise. This is a costly, inefficient and productivity-impacting cycle that is difficult to justify. Because financing cycles out old equipment every few years, companies maintain their productivity, avoid the financial impact of depreciation and benefit from newer, faster technology more consistently.

While much remains to be seen in the months ahead, companies that consider solutions such as financing will be in a stronger financial and operational position that maximizes their capital, makes a measurable impact on their performance and helps to sidestep many of today’s labor and equipment challenges.

About the Author

Mike JonesMike Jones is a Senior Vice President at River Capital Finance where he develops and manages manufacturer equipment financing programs. Prior to River Capital Finance, he held leadership positions at various financing and commercial capital firms. He can be reached at mjones@rivercapital.com.