It is recognised by all canny leaders across the UK that to deliver success, good business grade communications systems are an absolute must. Telecommunications are not a cost, they are an investment. However, when that time comes to upgrade, replace or invest in that very first telecoms solution, sometimes the necessary funds simply are not there!
For many, this is where the lease finance option comes into play. It provides an opportunity to secure access to a state-of-the-art solution via Operating Expenditure funding (Opex), paid monthly or more usually quarterly over a set contract period. Occasionally lenders can finance at 0% interest (when there is a vendor support program running in the background), but more likely there is a cost of cash associated over the term, making the system slightly more expensive than an outright purchase. However, for many this and the fact that the solution can be accounted ‘off book’ as an operating expenditure is an extremely attractive investment that some feel is worth considering.
“Fool proof” I hear you say! “What could possibly go wrong”?
Well, leasing really is another of those areas where the devil is in the detail. For example, there are many leases currently in place where customers can never own their equipment and they do not realise that this is the case! They will find themselves continuing to pay, long after the lease term has expired (or risk having the equipment removed from site). The worst example of this we have seen at Evoke (not provided by us of course) is a company in the Southern Counties that have been paying for their small 8 user telephone system, obtained on a 5-year lease, for more than 15 years now! We also heard recently about a London company that has over the years paid £100,000 for what should have been a £5,000 system. Crazy!
This goes on more than you might imagine with, for example, many leases through BT Local Business providers being ‘lease rentals’ as opposed ‘lease purchases’.
So, how can this be avoided? Well, the secret lies in knowing the different types of leases that are available as options. In simple terms there are two types of lease. Let’s look at these individually:-
Lease Purchase
Here the customer pays for the equipment over an agreed period, via Direct Debit to the finance company, then at the end of the term is given the opportunity to purchase their equipment outright for a pre-agreed nominal fee (e.g. a paperwork admin charge).
But, what are the watch-outs here?
Do be sure you have an understanding of what that buy-back price is upfront. Evoke charge a small administration fee to buy title from the finance company and then to pass title to the customer… however we have known of cases where customers have been charged an additional 6 month or 1 year rental rate to buy their own kit back, by other telecoms companies.
Lease Rental
This is where the customer pays for the equipment over an agreed period. But, at the end of that period they do not have the opportunity or indeed the contractual right to purchase the equipment outright. At the end of the term the client continues to pay at exactly the same rate … in perpetuity or the lease company / seller might ask that the kit be returned at the owner’s cost. Alas, this tactic is often used as a vehicle to encourage the customer to take out a new lease on a brand-new replacement system.
You might also have heard of the term “peppercorn rental”. This can happen at the end of a lease rental as an ongoing payment thereafter. This might be as low as a small monthly or annual payment, but invariably tends to be the quarterly lease payment rate. Over the years this soon stacks up!
The watch-outs?
Lease rentals in general. If you can lease purchase then why get locked into a rental (unless of course you want to avoid putting an asset on the company balance sheet)?
Agreements where telephone line rentals and support rentals run side by side. These are often over shorter terms, causing co-terminating date issues and general demarcation issues.
We have even come across a case where a customer was threatened with removal of a system on a 7 years lease, when they refused to renew an expired telephone line and broadband contract 5 years into the 7 years term. Dreadful!
So, as you can see, there are areas to mindful and wary of. Do you have a current lease agreement in place? And if so, do you know for sure what the arrangements are when your term expires?
Are you currently negotiating a deal at the moment that includes a lease agreement?
Or are you considering a telephony refresh and didn’t realise that a fabulous and reputable company like our good selves could help you with an Opex option through lease arrangements? Well you know what you can do!
For any queries, guidance or just free advice, please do feel free to contact us at [email protected] or smile whilst you dial our friendly sales team on 01509278278.
