It’s not very glamorous, but financing business purchases of IT products is a lucrative side of the game. It may not be as good as having the only PC operating system in town, but it adds to the bottom line. In that regard, Microsoft today announced that they are outsourcing their worldwide financing business to CIT Group:
CIT Group Inc., a leading global provider of consumer and commercial finance solutions, today announced a five-year global relationship to provide vendor financing solutions for Microsoft Corp.’s products and services. Under the terms of the agreement, CIT will begin as the exclusive financing partner for Microsoft® Financing in France and Switzerland. The relationship is expected to expand to other major global markets by the end of 2007.
Outsourcing of financing like this is fairly common because of the specialist capabilities required, although a cash rich company may choose to put some of their own loot in the financing kitty to lower the bills and for the high returns. While no financial terms of this deal were disclosed, that appears to be what Microsoft is doing according to Dan Wichins at Reuters:
Vendor financing has traditionally been the domain of hardware companies, but Microsoft is finding that many customers are spending as much on software as they are on hardware, and are looking for financing, said Brian Madison, general manager of Microsoft Financing in Redmond, Washington.
“Customers are willing to pay cash, but we can sell more if we offer financing,” Madison said.
I’m restraining the urge to say, “Well, duh!” since I’m sure Madison is more savvy than this makes him sound.
Microsoft has a $500 million portfolio of vendor loans to customers, but aims to increase that to several billion dollars over the next few years, Madison said.
The software giant plans to use cash from its balance sheet to finance its loans to customers.
The CIT/Microsoft partnership announced Wednesday is a big deal for CIT, whose vendor finance division generated about a third of the finance company’s net income in the first quarter.
The Microsoft Financing home page has more on the latest “deals” as does this Q&A with Madison which points out new outreach to small businesses like dropping the minimum transaction size from $10,000 to $3,000.