1. Leasing Assets That Should Be Purchased

Suggesting that purchasing may be the better option is perhaps an odd place to start for a leasing company, but habit is no friend of financially sound business practices. Too often companies lease an asset type and then continue to lease that asset without a second look. In order to not be surprised by end of term difficulties and other problems, companies should assess each transaction on its own merits. Consider key points like the following: are these users going to be able to maintain the equipment appropriately? Will invoices be paid in a timely manner? Will the equipment be returned when required? Doing what has always been done is not a good reason to lease when it may be better to purchase.

2. Focusing on a Low Rate

One client of ours looked at every bid and awarded the lease based on solely on the lowest number. While I understand the importance of competitive lease rates, payments are only one factor that determines the true cost of the transaction. Other factors must be taken into account. For example, if payments are late, will I always get charged late fees? Will the company be flexible when it is time to return equipment? Can I compare end of term flexibilities? Is documentation and vendor payment timely? If I have a problem, will someone listen? There is nothing wrong with awarding to the low bidder, but it should be done with the knowledge that there are other questions that should be taken into account.

3. Dealing Primarily With Captives

Captive finance arms serve two basic purposes: help the vendor move equipment and get control of the customer’s financial footprint. They are very often the low bid because they need to sell equipment, but when they chase a deal it is because they want the financial footprint. No matter how strong the numbers and the company, lessees need to understand the power shift that occurs when using vendor captives and give consideration to leasing companies who are interested in the residual value of an asset while remaining equipment agnostic.

4. Not Protecting Against Known Risks

Whatever has happened in past leasing relationships, both good and bad, should be considered when entering into your current transaction. The best example of this is pc and server leasing. It is well known that there is a possibility of losing or replacing equipment during the term; maintenance problems may result in a box swap, and sometimes things get moved around and can’t be found at lease end. These known risks need to be acknowledged up front. Make sure that your lease documentation includes serial number substitution on return. Plan ahead and document to protect.

5. Not Managing the Return Process

Leases are about more than payment stream, and for Lessees they are primarily about the back end. Whether you extend or return at lease end think about the process. You can’t return a bucket of bolts, so think ahead and put processes in place which allow you to plan in consideration of the return provisions in the Master Lease. Failure to internally control this process will cost you a lot of money – I am ok with that – but you shouldn’t be.

 6. Acting Too Late When There Are Upgrades

With certain kinds of equipment, upgrades are inevitable. Every time you need to upgrade equipment under lease you need to understand correct accounting for that upgrade and plan ahead. The earlier in the lease that an upgrade occurs, the easier it is to make economic sense of a coterminous payment stream. If your equipment’s utility is extended, work with the lessor to evaluate the total cost of an early extension. All things are possible if you ask the right questions.

7. Not Encouraging Questions or Being Prepared to Answer Them

Too often a bid comes out and the request is for a number. Lessors want to know lots of things about the environment such as the way the equipment is being used, what it replaces, what other assets may be involved, etc. Questions lead to understanding, which can create new and unexpected opportunities. Engage with your lessors to explore the full range of solutions.

8. Underestimating the True Costs of Small Leases

I get a lot of requests to do sub-$20,000 transactions. I do it for my clients on occasion, but not all of the time. Every lease requires accounting, invoicing, payment, back end requirements: and those are your problems. For a lessor who is not in the small ticket business, it is a money loser from day one simply because of administrative costs. For a lessee it is also a loser from day one if the cost of processing an invoice approaches $25. Buy the equipment, or move it into a larger transaction. It is also worth noting that in this environment no bank wants to finance small deals which can complicate the lessor’s life. Take advantage of small deals occasionally, but recognize the burdens.

9. Not Allowing a Leasing Company to Reduce Complexity

Those of us who are leasing professionals enjoy the challenge of solving problems. Creating solutions to complex issues pushes us to be our best. Whether trying to get out of bad lease arrangements, working with budget limits, or having a huge range of equipment that creates challenges in structure bring your leasing partner to the table for a conversation. Walden has helped many clients create solutions through creative thinking. Such innovation requires an open dialogue and a willingness to think outside the box.

10. Resellers – Not Taking Advantage of Being in the Game

I have talked to a number of resellers who frequently tell me that their clients don’t lease. They acknowledge at times that some customers do lease but they don’t believe that their salespeople can sell the lease. The solution is to develop and trust expertise and run numbers that reflect the additional business that is available by leasing equipment. IBM and HP, to name two companies, report double digit increases in demand due to the current economic reality. Resellers have an opportunity to play in this space, shorten DSO, and make a difference if they embrace and are disciplined around leasing solutions.