Pay-Per-Use in action: turning PPU into a reality to fund manufacturing equipment

Summary

The recent Asset Finance Connect webcast, Pay-Per-Use in action: turning PPU into a reality to fund manufacturing equipment, sponsored by Lendscape, featured a panel of experts from bank-owned lenders, OEMs, vendors and technology providers, who discussed the implementation and benefits of Pay-Per-Use (PPU) models in the manufacturing sector.

Enhancing European competitiveness through PPU

Günter Hehenfelder, CEO and Founder of Findustrial, emphasised the urgent need to boost Europe’s industrial competitiveness. He noted that while advanced technologies are available to reduce costs and increase output, traditional capex models are becoming less effective, especially during challenging economic times.

Hehenfelder advocated for innovative PPU models that allow businesses to pay for performance or outcomes rather than the equipment itself, aligning costs with actual usage and supporting green initiatives. In the “Factory of the Future” (below), Hehenfelder highlighted the solutions that have already been implemented with different partners.

Bank perspectives on PPU implementation

Oliver Hedl, Head of Commercial at S-Leasing (a subsidiary of Erste Bank), shared insights from their five-year experience with PPU leasing. Initially focusing on the automotive industry and small businesses, the bank observed increased demand for flexible leasing during the COVID-19 pandemic. This success led to the expansion of PPU models into green assets like photovoltaic (PV) plants which Hedl called “the big game changer”, where 60-70% of leasing agreements now utilise PPU structures.

Hedl highlighted the importance of automating processes to calculate leasing instalments based on equipment output, providing customers with flexibility in repayment terms.

Vendor insights: aligning products with PPU models

Alexander Schellnast, Managing Director of Solpro GmbH, discussed the advantages of PPU models in selling PV plants. By utilising Findustrial’s platform, customers can clearly see cost-per-kilowatt-hour calculations, making the financial benefits of PPU transparent and compelling. Schellnast noted that the PPU model can easily be used for other green assets including battery storage.

Schellnast emphasised that this approach reduces risk for customers and simplifies the sales process, providing a competitive edge in the market.

Challenges and opportunities for financial institutions

Chris Lillico, Managing Director of Finance for Industry at Close Brothers, acknowledged the UK’s cautious approach to change and ownership. However, he noted a growing interest in PPU models, particularly among larger users focused on cash flow management.

Close Brothers is engaging with equipment suppliers to explore PPU offerings, viewing it as an additional tool to align funding with client cash flows.

Lillico noted that you need to have a deep understanding of assets you are financing if you are giving the flexibility of a PPU model, highlighting the “key industry teams at Close Brothers that understand the assets, understand the routes to markets and the exit strategies.” Lillico pointed out the need for partnerships with global equipment distributors and second-hand markets to manage assets effectively.

Lillico warned that “technology can be an issue” with PPU models, noting that “bank’s tech systems tend to be archaic and that is why we need fintechs like Findustrial to provide the software and IT to monitor usage.”

Technological integration for PPU success

Steve Taplin, Managing Director at Lendscape, discussed the necessity of integrating technology to link variable payments with equipment usage. He pointed out that many existing legacy systems lack the flexibility to support PPU payment profiles.

Taplin emphasised the importance of a flexible engine and API connectivity to handle IoT data from assets, enabling accurate billing and contract management.

PPU is compelling in a number of cases, noted Taplin, for example, solar energy, where swapping higher-cost standard electricity for a lower, variable bill amortising the solar equipment’s capital expenditure offers clear cost benefits. Additionally, SMEs seeking accelerated ownership or those whose revenue heavily depends on essential equipment, such as a laser cutter, find PPU models advantageous as it aligns costs with asset performance and utilisation.

Taplin noted that “PPU is an asset finance agreement that has a variable payment based on the usage of the asset, thus providing a level of flexibility that has a compelling value to certain customers and certain asset classes”.

Building ecosystems for effective PPU delivery

The panellists concurred that successful PPU implementation requires collaboration among various stakeholders, including OEMs, lenders, technology providers, and service partners. By leveraging each party’s expertise, businesses can offer flexible, usage-based solutions that enhance customer value and drive competitiveness in the manufacturing sector.

The webcast highlighted the transformative potential of PPU models in manufacturing equipment financing. By aligning costs with actual usage, PPU offers a flexible and efficient approach that benefits both providers and customers, supporting economic growth and sustainability in Europe’s industrial landscape.