How IT and Managed Service Providers Fund Hardware Procurement for Clients

The pass-through procurement problem

A managed service provider that procures servers, networking equipment, end-user devices or software licences on behalf of a client must pay its distributor or vendor — typically on 30-day terms — and then invoice the client and wait for payment. If the client takes 45 or 60 days to settle, the MSP has funded the cost from its own balance sheet for up to 90 days in total.

For a business winning a significant infrastructure refresh contract, the procurement requirement can run to hundreds of thousands of pounds at a single point in time. Absorbing this on company cash is impractical for most owner-managed IT businesses.

Invoice finance for IT businesses

Invoice discounting allows the MSP to draw against its sales invoices as soon as they are raised, covering the period between recharging the client and receiving payment. The facility is well-suited to IT businesses because invoices are typically clear, supported by a purchase order and raised against creditworthy commercial clients.

Where invoices include both a pass-through hardware component and a recurring service component, the lender will assess whether both elements are eligible. Recurring managed service charges with contracted terms are often viewed favourably.

Distributor credit lines and vendor programmes

Technology distributors routinely offer credit accounts to established resellers and MSPs, providing 30, 45 or 60 day terms on hardware procurement. Extending these credit lines — or opening accounts with additional distributors — is often the most efficient way to bridge the procurement gap for smaller projects without engaging a formal finance facility.

For larger deployments, distributor credit lines may be insufficient or may expose too much of the company's credit capacity on a single deal. A revolving credit facility at company level provides a backstop that can absorb procurement spikes without exhausting distributor limits.

Project finance for large infrastructure deals

Where an MSP wins a substantial infrastructure project — a data centre refresh, a cloud migration requiring on-premise hardware, or a large end-user computing rollout — a project-specific finance arrangement may be more appropriate than drawing on a revolving facility. Some lenders will advance against a specific purchase order from a creditworthy client, providing funding tied directly to that contract's delivery and payment timeline.