5 Unseen Ways Companies Lose Money on Their Leasing
Your company is throwing away money, right under your nose
Even the smallest of businesses have numerous facets that need separate care and attention given to them, so it is reasonable to see why many companies end up overlooking places where they are losing out on money.
Leasing is one such area that many companies rely on, yet do not give the TLC it deserves and end up paying a great deal more on lease agreements and contract management by signing awful deals and failing to invest time into their portfolio management.
Leasing isn't Considered a Factor
The finance department of a nationwide company can be huge and cover a whole series of different departments, expenses and compliance accounting. Similarly, the procurement division will be just as diverse and divided amongst different regions and asset types.
Leasing is a rather niche section of both of these areas, but is a hugely popular and growing solution for asset funding that many businesses rely on for their operational needs. Because of this general imbalance of its necessity, but lack of consideration, there is often no one within the company with specialist leasing knowledge. If leasing is not seen as a priority, there won't be systems or processes set up that get the best value out of leasing.
Some large blue chip companies have entire departments dedicated to leasing, but some equally large companies don’t even have an organised way of keeping their lease portfolio in check. Without giving leasing the respect it deserves in relation to your company’s procurement habits, then naturally, you will end up wasting money on ill planned negotiations that a leasing specialist could make much cheaper.
UPDATE: The finalisation of global changes to lease accounting is imminent. Organisations around the world will need to review their active leases in order to maintain full compliance to IFRS and US GAAP.
Notices OverrunIf leasing is not deemed an important factor, then it is unlikely that there will be a process in place to make sure contract negotiation and asset management goes off without a hitch. Strangely, a very common symptom of a bad lease portfolio is the amount of unnecessary lease extensions. Many companies end up paying for twice the value of an asset by simply failing to end them! The lease contracts then overrun and automatically extend at the same rate. Even a couple of extended leases can eat a considerable way into a company’s profit and depending on how long they go unnoticed, could end up costing hundreds of thousands, just because there was no leasing software to remind them to agree their end of lease plans within notice.
No Audit Trail
Once again, if there is no focus on leasing within a company, then there is unlikely to be much of a system in place to track and trace what happens with a lease. As leases are long term agreements, there can be a vast difference between the lease inception, where the contract terms are agreed, and the end of lease procedures - memory alone is not enough to make sure you have kept up your end of the contract.
Having an audit trail is extremely useful if things go awry. Being able to track who agreed what and when allows a business to find answers, fix problems and ensure they don’t happen again. Without suitable lease management software, internal communication around leases can be very ill managed, meaning people with minimal experience in asset finance are agreeing lease schedules and extensions because they need an asset. Without the knowledge and management of the procurement teams, the company can end up missing out on the great deals they signed up to originally – for example, they could miss out on a peppercorn rate with a finance lease that made it an attractive deal in the first place.
Asset Reporting Unmanaged
If there is no audit trail, then it is also likely that there is minimal reporting on assets during the lease period. It is vital that during the lease, you stick to your contractual expectations as a lessee as this is where the charges will occur at the end of the lease. Something as simple as knowing where an asset is located within a company is very useful – vehicles and portable equipment like laptops and other tech can travel across the country and you don’t want to end up losing them.
Also, some assets have limitations on their usage. MHE assets like forklift trucks may have restricted battery life or fleets of vehicles may be limited to a set amount of mileage during the lease term. By tracking and recording these values throughout the lease life, it is much easier to ensure these limits are not breached. If one lorry in a fleet is reaching the mileage limit, by checking your online records, you know to substitute it for one that is not as far gone and avoid any unwanted hassle when it comes to checking the numbers and realising you have failed to meet the return conditions on one lorry and had plenty of scope to avoid that.
No Leasing Software
The best way to avoid all of these issues from occurring is to simply invest in some leasing software. If leasing is an important part of your business’s procurement then it seems foolish not to invest a little in making sure it goes off without a hitch. Innervision’s specialist leasing software "LOIS" can do all of these things and more to make sure your leasing is on track! LOIS is a great way of consolidating your leases and is filled with features that can be tailored to your business to ensure you chose the best quotes, agree your end of lease plans within notice and keep up to date with your lease reports.
Once your books are in order and you’ve organised your leases in one secure place, not only will your leasing become a much smoother process, but you will also be able to see any money saving opportunities from problems that may have gone completely under the radar.
To hear more about how LOIS can help transform you company’s leasing and save you time and money, schedule a demo or talk to one of our leasing experts.
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