How Leasing Can Impact Your Business’s Bottom Line
From reducing risk to improving cash flow and enhancing day-to-day efficiencies, this is how leasing can help increase your company’s profits.
Whilst businesses get to use the assets as if they own them, and this includes anything from a coffee machine to a passenger plane, they have few if any of the ownership responsibilities and can take advantage of other financial benefits too.
However, the ways in which your leased assets help contribute to a healthier bottom line depends on the asset itself and who you are leasing it from. There are various types of agreements and providers on offer and it’s likely that your company will end up managing leases from lots of different sources.
Keeping well on top of your lease portfolio management will ensure you get the maximum benefit to your bottom line from your agreements.
Leasing from a manufacturer or their suppliers
Probably the most familiar type of lessor to companies, this is the same as you will be used to in your personal life, e.g., when you may have leased your personal vehicle or domestic goods in the past. B2B lease agreements can be made directly with a manufacturer or their supplier.
This can help improve your bottom line by minimising the handling and administration costs between the asset being produced and your company paying to use it. This should result in more competitive prices - especially if there are multiple manufacturers and suppliers of the same leasable assets; e.g. the commercial leasing arms of Ford and BMW competing to win your business’s company vehicle contract.
The closer your agreement is made to the original manufacturer means the more knowledge they will have of the asset and the easier they’ll be able to facilitate repairs, maintenance and replacement parts - with a lower cost too.
All of this contributes to a more economically efficient agreement which feeds into your bottom-line success.
Leasing bank owned assets
Given the sums involved with some of the assets available to lease and the duration of agreements for heavy plant and other machinery (in fields such as real estate, manufacturing, construction, aviation, etc), it’s no surprise that financial institutions offer asset finance to their clients.
The benefit to your bottom line of using your bank to facilitate lease agreements is that your lease portfolio management (or at least this particular part of it) forms part of your general credit agreement and performance. It’s also easier to establish your lease agreement as you’ll be a valued customer of the bank already and can often negotiate more favourable terms of a lease agreement than you would if you were approaching them as a cold customer.
Leasing from an independent lease provider
However, you may wish to keep items separate from your credit provider or they may not be able to offer finance on the assets you wish to lease. Likewise, it can be an easier management process to have an independent lease provider who can provide most if not all your lease portfolio, as this will reduce the number of providers you work with and make admin easier.
This setup helps you to improve your bottom-line success by making the administration and lease portfolio management more efficient, as your team will only be dealing with the one company.
The cost of your full lease portfolio can often be lower when using dedicated, independent lease providers because sourcing finance for efficiently priced assets is how they stay in business. As the leasing industry has grown, this has been great for the customer side of the market because suppliers have had to work harder to stay in business.
This can be through lowering the cost of lease agreements - which directly helps you financially - or by offering superior assets and service - which indirectly helps by improving your operational performance.
All of this, of course, depends on proper lease management to make sure you meet your responsibilities and maximise your benefits as the lessee in an agreement.
What the lessee needs to do to make sure their leases help their bottom line
There are some basic best practices which will ensure you only experience the benefits of leasing to your bottom line and don’t suffer the financial penalties which lease providers have a (somewhat unfair) reputation for thriving upon.
Lease agreements allow term-to-term certainty of expenditure which facilitates better financial planning. However, you must keep the assets in good and proper condition over the course of the lease term. The asset is not your owned property but treat it as if it is because the provider of your lease will resume full ownership responsibilities at the end of your agreement.
A common objection of leasing is that leasing providers always overcharge for any damage at the end of the agreement. But by properly looking after leased assets this will completely negate this risk, only using your leased assets for the intended purpose will go a long way to making sure you meet that goal. It may be tempting to use certain assets for other purposes than originally intended. However, overusing them, skipping scheduled maintenance to pinch a small win can be detrimental in the long run. It runs the risk of an end of term penalty cost or taking redemptive measures, both of which may negate any benefit of leasing on your eventual bottom line.
Still don’t know which one is for you and your business.
Being sure about the decisions you’re making for your business can be tricky. You’ll want to make sure you’ve considered all the angles and know the details of each option.
At Quadrent, we have a long history of making the complex world of leasing simpler. We work with organisations helping them access assets without sacrificing cash flow and addressing their ESG risk in the process. With a team that has in-depth leasing knowledge and specialised accounting backgrounds, we’ll help you get the most value out of your assets while addressing growing ESG requirements and reporting expectations.
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