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Lack of finance could kill ASPs

Cashflow pressures on application service providers (ASPs) could force many out of business and leave users in the lurch,...

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Cashflow pressures on application service providers (ASPs) could force many out of business and leave users in the lurch, consultants have warned.

Despite the explosion of ASPs industry experts fear that many suppliers will go to the wall due to the different charging model involved in ASP deals.

In contrast to traditional software deals where the supplier can demand most of the software licence and service charges when the deal is signed, ASPs will receive software licence fees on a weekly or monthly basis over a three- or five-year period.

This is likely to drain the finances of smaller suppliers after their initial investment, say consultants, who urge users to consider the financial staying power of their ASP supplier before signing any contract.

"The ASP has a huge initial cashflow deficit in the first four years of the problem," said Peter Moller, head of shared services for Arthur Andersen in Europe. "Some, with good financing, will survive but others will go under.

"If an ASP is contracted over five years to provide [your] finance systems at £2,000 per user and it goes into liquidation, who are you going to sue?"

Moller predicted, however, that large suppliers will be keen to snap up ASPs which run into financial problems and take on the existing contracts.

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