Alta Consultant John Hurt in a recent Monitor podcast said equipment leasing companies that were early adopters of digital technology solutions and weren’t reliant on paper have adapted more quickly to working remotely during the Covid-19 pandemic. The coronavirus and subsequent stay-at-home orders quickly illuminated sizeable gaps in equipment finance processes and business operations that clearly needed to be more mobile and flexible.
“The ability to get at your data and your work product regardless of where you are located, is critical,” says Hurt. “It varies by job function, but digital contracts, billing, and files that you can reach from home make a big difference now.”
Where are the most noticeable gaps? Systems that provide flexibility for rebooking and mid-term changes tend to be asset-based systems as they enable quicker restructures, says Hurt. “You can suspend some items and keep the yield or payment the same and continue servicing. But with contract-based systems, you’d typically have to terminate the contract and then re-book it. Such a functional leg up allows you to adjust much more elegantly and swiftly. The trade-off is in the booking, where you must enter all of the asset information.
“Customers requesting restructures, skip payments and other adjustments to their contract are stressing some of the older platforms. Part of what we saw during the pandemic shutdown was accounting staff still going in to process paper.”
The overarching goal should be clear, he adds: “We have to be ‘digital first’ and that includes having cloud or software-as-a-service (SaaS) operations where you pay for a seat and login via a browser instead of a perpetual license on your own servers.” But, he says most systems in our industry are still on-premise. It’s the way legacy systems were delivered until about five years ago. In addition, using digital contracts, electronic signature, electronic bill presentment / ACH payments eliminate the need to scan paper.
What has been the delay in digital adoption? “Someone once told me ‘changing systems is like a heart and lung transplant while you are still running a marathon’ and the risk is extremely high,” says Hurt. “Much of the complexity in the IT systems comes from the variety of ways people do leasing; vertical markets have a lot of differing requirements. A system ideal for auto leasing may not work well for a general equipment finance company, for example. He also notes that companies with very robust core platforms will still need to integrate 15-20 ancillary applications, so it is important to select a system with open application interface (API).
For companies still using on-premise systems in this pandemic period, they would have to rely on their internal IT groups to create and manage secure portals to allow people access to system data and files. However, if the source data is paper, someone initially has to digitize it. Some companies are simply rotating people into the offices for continuity’s sake, he said.
Beyond the pandemic, Hurt anticipates the following trends will prevail:
- More mid-term flexibility for contract adjustments. This likely means asset-based systems rather than contract-based programs will be in demand for the reasons noted above.
- Customers will be seeking alternatives to owning equipment and will re-assess how they acquire equipment to preserve cash; a lot of people are asking for relief from their contracts, but as business ramps up they may think differently about the assets they use and will consider sharing equipment or paying only for when it is being used. This may lead to more managed services for usage-based financing.
- Sale-leasebacks are gaining renewed interest because they enable one to extract operating capital from assets that don’t need to be owned.
- The shift to working from home will prove attractive in some cases; more employees may continue working remotely well beyond the immediate coronavirus crisis.
The challenges of remote work will need to be addressed and this is far more intricate than simply providing a laptop, Hurt says. Security and access rights need to be developed for users outside the corporate infrastructure. The decision on whether to allow non-branded equipment usage remotely can have serious security consequences. Cloud-delivered applications make this somewhat easier.
Electronic approval processes supported by Business Rules Engines (BRE) need to replace paper sign-offs. Many CRM and ERP platforms have this type of functionality built in, but it is often not deployed because of resistance to the electronic model. Electronic document execution is an essential component of this approval process.
Speaking to several technology executives who are dealing with this now, a “one size fits all” approach is not working, Hurt notes. The job requirements of a credit analyst vs. an asset manager vs. an accountant will drive a wide range of functional and data access requirements. A simple laptop and data line that are used by sales executives (the typical remote users) are insufficient to support the activities of users who traditionally partner with other groups in person.
Platforms to support video conferencing and document collaboration are a minimum starting point. This is a great opportunity to push many of these concepts and technologies that have had slow adoption in the past.
The Alta Group helps companies make system selections and plan for digital transformation but right now, says Hurt, many companies are dealing with a short-term “disaster recovery” type of situation; when they get beyond that, more technology investment is anticipated to maintain a more dispersed workforce and gain operational flexibility.
Source: Monitor Podcast and interview with John Hurt, Director of Alta’s Digital Advisory