We’ve identified the five most common leasing misconceptions. in this guide we debunk the perceived disadvantages and explain to you how leasing can benefit your business & customers.
Often if can be easy for potential customers offered an OPEX leasing solution, as an alternative to a CAPEX solution, to assume that it is too complicated or too costly. Partners that we work with today originally had concerns that their products weren’t suitable for leasing or their customer relationships will change when they buy into a leasing solutions.
We want to help you understand how leasing solutions can aid your customers and ultimately grow your business. In this article, we discuss five of the most common misconceptions we often tackle, and demonstrate the value leasing solutions can bring to you and your customers.
- ‘Leasing solutions are too complicated.’
- ‘Customers prefer to own their own kit.’
- ‘Leasing solutions will take away our control and relationship with our customer.’
- ‘Our product isn’t suitable for leasing.’
- ‘Leasing solutions is too expensive.’
‘leasing solutions are too complicated.’
Selling equipment on lease will offer your customers an ability to acquire expensive capital equipment by way of relatively small monthly or quarterly repayments resulting in more sales and higher order values. The use of ‘on line’ tools to generate quotes and submit proposals for underwriting, as well as the ability to use electronic documentation and e-signatures makes the leasing process every bit as simple as selling for cash.
Here are 3 reasons why you should consider leasing:
The flexibility of monthly rentals
Monthly/quarterly rentals, with different terms and payment profiles, offer a large amount of flexibility as opposed to a cash deal. It can help overcome customer cost objections. Our ‘online’ pricing tool makes it easy to convert a cost price to monthly/quarterly rental options, giving your customers a choice of terms to suit their budgetary requirements.
Quick and easy credit approvals
A second simple step in the process of setting up a leasing agreement is to get your deal approved for credit. Proposals can be submitted ‘on line’ and in many cases you will be provided with an immediate automated decision. Our advice is to get the credit clearance in place before you visit the customer, which for limited companies, can normally be done without the customer having to provide any information.
We take care of the invoices
Unlike selling for cash, it is not necessary to negotiate invoice terms with the customer. Once the terms of the leasing agreement have been agreed, the customer will sign a contract to lease the equipment. The document can be signed electronically or in paper form, the choice is yours. Once the contract has been signed and the deal accepted all you need do is deliver the equipment and send the invoice to us. Collecting rental payments from your customer will then be our responsibility and you can concentrate on finding new customers.
‘customers prefer to own their own kit’
There are two circumstances where owning an asset makes sense:
- Where the intention is to keep the asset for many years.
- Where the asset is likely to appreciate in value over time.
It is for these reasons that in our private lives we like to buy our houses, if we can afford them and intend to stay put for a few years, but lease our cars. In the world of commerce, capital equipment is closer to cars than houses in this analogy. Technology moves quickly. It is important for businesses to replace equipment at regular intervals to maintain a competitive edge and comply with ever-changing health, safety and environmental legislation.
This is where leasing comes in. Leasing makes it very easy to upgrade equipment as and when necessary without having to find the funds necessary to purchase the equipment outright.
Here’s how the leasing lifecycle benefits business:
- The length of a leasing agreement matches the period over which a business intends using the equipment.
- If circumstances necessitate early replacement of equipment, a leasing agreement can be settled early and any outstanding rental payments re-financed within a new agreement, making the upgrade a seamless transition.
- Unlike ownership, there are no worries about disposing of original equipment at the time of replacement. When a lease ends the old equipment will simply be collected and in most cases replaced by new.
‘leasing will take away your control and relationship with the customer’
Taking out a leasing agreement will often strengthen the relationship between you and your clients:
A lasting relationship
A cash deal can sometimes represent the beginning and end of a relationship, whereas when equipment is sold on lease a relationship will be in place for at least the duration of the leasing agreement.
Replacing and retaining equipment
A leasing deal provides a degree of control you, as the equipment supplier, will have when it comes to your customer replacing equipment. A lease will come to an end at a defined point in time. When this point is reached the original equipment supplier can normally control whether their customer can replace or retain the equipment. In the vast majority of cases the equipment is replaced by way of a new leasing agreement.
When a customer owns equipment there is no specific time at which any decision to upgrade has to be made. This means that outright purchase often results in equipment being retained beyond it’s useful economic life and delays the introduction of productivity-improving new technology.
‘Our product isn’t suitable for leasing’
Most, if not all, types of capital equipment are suitable for leasing, ranging from ships and aircraft to laptop computers and everything in between.
The Finance and Leasing Association, a trade body representing UK leasing companies, reported that £27bn of new asset finance lending to UK businesses was achieved in 2020 despite the pandemic-related recession. This represented over 34% of all capital equipment investment made by UK companies.
Leasing is a popular option for all types of organisation, with SMEs accounting for £16bn of the £27bn worth of business written in 2020. Corporates and The Public Sector are also dependent on leasing to fund some or all of their capital equipment requirements.
We generate most of our business through suppliers of equipment in a number of defined markets. Through many years of experience we have tailored finance products and service offerings to meet the needs of those markets and provide both suppliers and their customers with a compelling reason to make leasing the favoured means of acquiring new equipment.
‘leasing is too expensive’
There are certain factors which mean that in real terms the actual cost of a lease can be significantly lower than the sum of rental payments.
Firstly, all rental payments are fully tax allowable. This means that for tax paying organisations the real cost of any lease will be reduced by the equivalent of their marginal rate of taxation, which is currently 19% in the case of limited companies.
Secondly, there is often significant financial benefit by taking out a leasing agreement. Leasing allows you to invest the cash equivalent of purchasing the equipment into the running of a business. In simple terms this means that if the return on capital generated by a business is greater than the finance charges implicit with a leasing agreement, the leasing agreement in real terms will be cheaper than outright purchase. This is one of the most important reasons why many cash-rich businesses decide to lease all their capital equipment acquisitions.
Finally, leasing agreements represent particularly good value at the current time. This is because the cost of leasing is directly related to the general level of interest rates prevailing at the time a deal is struck and Bank of England base rate has been at, or around, it’s lowest ever level over recent times. No matter what happens to interest rates in the future the rental payments on a leasing agreement, once in place, remain unchanged.
BNP Paribas Leasing Solutions is not authorised to provide tax advice. You should consult an accountant in order to understand the tax consequences of any investment decision.
Andy is an experienced sales and finance professional with over 25 years’ experience in sales aid leasing. Andy is widely recognised as an expert in business finance and has in recent years focused his attention on developing partner sales teams develop an understanding of how businesses secure project financing. His training programme – Finance Unlocked – is a highly rated customisable course and is offered at no cost to partners.
If you’re interested in helping your sales team overcome finance-related hurdles during the selling cycle, please get in touch with Andy on 07966 114 243 or email here.