Focus on Leasing: Picking a Lease Partner
Posted on Thu, Mar 25, 2010 @ 05:08 PM
Having worked closely and consulted with many different IT decision makers, I've found that the process for picking a lease partner can be flawed. More often than not the lessor is chosen based on a recommendation by a reseller or VAR. (Or worse, the reseller/VAR is the leasing company.) The spirit of this week's post is to discuss the benefits of independently evaluating your lessor options.
Last week's post discussed your lease payment. The example that I used assumed that you, the lessee, got a good deal. One big assumption in that example is that it showcased the best lessor. In reality, however, there may be multiple quality deals to evaluate, making the selection process less clear. Picking the lowest monthly payment, for example, is only one of many indicators that you can use to pick the appropriate lease partner.
As the IT decision maker, if you plan to have leasing conversations with your finance department, it is important to have all of the facts, including the quality of your lease partner (with an emphasis on the term partner). Picking a lease partner is a long-term decision: once you sign your lease schedule, you're likely stuck with your new partner for 3-5 years.
Considerations
References
A lease partner with a good track record and nothing to hide will be happy to share references with you. It's a good idea to ask for both client (end user) and reseller/VAR references. A leasing partner may have great client (end user) references based on lease rates, lease schedules, or documentation processing, but if the reseller/VAR has a difficult time getting timely payments from the lessor, it may have a negative impact on you.
End-of-Lease Process
Ask your potential lease partner to talk with you in detail about their end-of-lease process and costs. These costs can turn the low upfront monthly payments into a high-cost nightmare 36 months later. In addition to the end-of -lease process, make sure that your potential lease partner is familiar with proper disposal of the returned equipment.
Brand Agnostic
Though specialization in a product segment (technology vs. cars or furniture) is generally a good thing to look for, partnering with a leasing company that specializes in a specific brand is typically not. Engaging multiple lease partners in the spirit of always having the lowest monthly payment for the project at hand becomes complicated to manage. Not only will you end up managing multiple lease schedules, you will also have to manage multiple lease partners and different term & conditions from each partner.
Consistent Money Factors/Lease Rates
A strong lease partner should offer consistent money factors. For example, they will not be overly concerned if you are leasing $100,000 of new laptops or $100,000 of new printers - the money factor should only fluctuate based on the residual value of each product.
Availability of Funds
Your potential lease partner should have good access to low-cost funds meaning cash in the bank as well as multiple credit lines. If you know that you have a large project on your hands, say a $5,000,000 server refresh, ask your potential lease partner if they, the lessor, would have any issues financing that amount.
Ability to Finance Challenging Credits
The lease partner should have experience extending credit even when there are credit-risk challenges. Your company may not be a good credit risk, and your credit worthiness affects your money factor. However, a strong lease partner should be able to work through credit issues and still be competitive, based on your organizations' credit worthiness.
Strong "Small Ticket" Program
Make sure that you potential lease partner has the ability to finance both small and large-ticket transactions. If you are a small business you most likely want a quick turnaround on the credit decision for small purchases. A strong lease partner will have tailored programs for small, medium, and large organizations.
Creative Financing Solutions
Financing options should be flexible. Not every lease has to be the standard 36-month operating lease or 60-month capital lease. Ask your potential lease partner for examples of when they had to get creative to earn a sale.
Asset Management Software Tools
A quality lease partner should offer online tools to help you, the lessee, access and manage your lease schedules, as well as provide you with training to use them. Do not assume that your reseller/VAR is going to manage your lease schedules on your behalf. You should also have easy access to this information.
Summary
There are multiple attributes to consider when choosing a strong lease partner. Take the time to critically evaluate your lease partner options just as you would take the time to evaluate the technology products and services that you plan to lease. At the end of the day, your lease partner is going to play a significant role in your organization. A bad choice in lease partner can cause a lot of pain 36-60 months down the road.
Are there other attributes you look for in a lease partner?
Focus on Leasing Topics:
- Leasing Vocabulary
- Financing Decisions
- Advantages of Leasing
- Capital vs. Operating Leases
- Understanding My Payment
- Picking a Lease Partner
- The OEM Lease
- Interest-Free Leasing
- Managing Lease Schedules
- Managing the End of Lease Process
Jeffrey Goldstein is Senior Consultant at MCPc and is responsible for the delivery of hardcopy and value added services within the Lifecycle Management Group. Jeff earned his BS in Management of Information Systems and Supply Chain Management from The University of Akron and his MBA from the Weatherhead School of Management, Case Western Reserve University. Connect with Jeff on LinkedIn.
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