9 Golden Lease Management Tips For Procurement & Finance Managers
When entering the world of lease administration for your business, there are 9 golden lease management tips which will make your life a lot easier.
Even if you’ve negotiated plenty of lease agreements in your time, treat these as back-to-basics tips which are well worth reviewing and remembering, especially as the goalposts are moving when lease accounting standards change on 1st January 2019:
- Use Reputable Lease Providers
- Negotiate Like You Would If Purchasing The Asset
- Keep Scale In Mind
- Remember Why You’re Leasing
- Balance Flexibility Benefits With Length And Value Of Agreements
- Analyse The Small Print
- Consider Outsourcing To Specialised Leasing Experts
- Use Lease Management Software
- Be Aware Of The Changes To Asset Finance And Leasing Rules
1. Use Reputable Lease Providers
In a way, this first golden tip is more a reminder that you shouldn’t forget common sense. Try to make decisions in the same frame of mind as you’d do with your personal finances.
If a lease provider is offering you a package which appears too good to be true, there’s a good chance it is. Would you be willing to risk your own money on, say, a leased vehicle which is being sold as a top of the range with an unbelievable warranty agreement which a salesperson is slow to provide the full details of?
But this is most probably like teaching you to suck eggs.
So, a quick word on the potential consequences of choosing an unreliable lease provider for your business. If your domestic lease provider disappears or the asset isn’t up to scratch, you can sever ties and take your money elsewhere. But when your business relies on these assets in order to function, the knock-on effects can soon spiral beyond your control. Before you know it, you may be dealing with delays, a drop in quality and unhappy clients or worse.
If unsure or new to leasing then speak with Specialised Leasing Experts as to who are Reputable Lessors in general and who are Experienced Lessors with the asset type in particular.
2. Negotiate Like You Would If Purchasing The Asset
Even those who aren’t new to leasing may benefit from remembering this tip. You are free to negotiate a lease agreement just like you would if you were purchasing the asset.
Part of the lease industry’s marketing technique is to sell all the benefits – the flexibility offered, quality assets at a lower price than purchasing, service inclusions, easy end of term agreements and these manifest benefits are just what conversely make lots of people reluctant to negotiate their agreement terms.
When purchasing a property or vehicle, it’s standard practice to go through a negotiation and settle on a sale price both parties are happy with. The negotiations which tend to take place over a lease agreement are often too short but there’s no reason for them to be.
Negotiate as hard as you would when purchasing the asset and you’ll be surprised what you can save. There are always other lease providers if the negotiation turns a bit sour. And don’t worry about that, this is business.
3. Keep Scale In Mind
When it comes to signing a lease agreement or deciding on the asset’s specification, keep the intended scale of the business 50% through the agreement’s duration in mind.
If you plan on growing the company size by 50% in five years’ time, in terms of employees, but know this might be a push and not wholly realistic, try to negotiate checkpoints in the agreement that will give you options if you want to extend the agreement or you need to look into moving into another property.
The same goes for other assets, from what output a manufacturing resource is capable of to the number of vehicles you’re allowed in your fleet.
4. Remember Why You're Leasing
You may be pursuing a lease agreement in order to attain maximum control over cashflow certainty or because you don’t have the capital or inclination to take the responsibility of full ownership of the asset.
Don’t get sucked into end of term purchase options if they aren’t what you originally wanted to pursue unless you can make a justified business case for doing so. In essence, the beauty of leasing is that you don’t have to be responsible for the ongoing maintenance and sale of the asset in X years’ time, so don’t be tempted into purchasing at the end of your agreement just because it’s a good price – if you don’t need the asset then return it.
It’s only a good deal for those who wanted in the first place to purchase the asset. You don’t. You want to lease it. And you’ve already paid the amount of the lease agreement too.
5. Balance Flexibility Benefits With Length And Value Of Agreements
Balance Flexibility Benefits With Length And Value Of Agreements
And still loosely on that theme, when finalising a lease agreement, you will be trying to balance the flexibility of a short-term lease with the value achievable from a long-term agreement.
The longer you’re willing to commit to paying a lessor to have use of their asset, the lower the periodical payments should be in return.
But the longer the agreement you sign up to, the less flexibility you have for change. And flexibility is one of the big reasons to lease an asset rather than purchase it.
6. Analyse The Small Print
Whilst checking the small print is the most cliched piece of advice you could ever receive, it really is worth noting when it comes to leasing agreements.
Make sure you understand in full what will actually constitute fair wear and tear on the asset. You don’t want to leave any areas of potential ambiguity which your lease provider can surprise you with when the time comes to return the asset to its legal owner.
7. Consider Outsourcing To Specialised Leasing Experts
If you aren’t confident enough in your knowledge of lease agreements and the wider market, it will be worth investigating the costs of paying for professional assistance. Specialist leasing consultancies and specialist lease service suppliers such as Innervision have extensive expertise and knowledge in a variety of leasing disciplines such as new lease arrangement, lease negotiation, and lease expiry (End of lease – EOL), as well as lease portfolio analysis and lease consolidation. Utilising the experience of such a specialist will not only help ensure you gain access to the assets that are essential to the operations of your business but also help ensure this is achieved at the best possible rates and on fair but optimal terms to you.
If you have the time or resource in the business to fully research and negotiate with a range of different providers, this tip might be ignorable. But if you do not, see a how specialised lease consultancy can help benefit your organisation here.
8. Use Lease Management Software
Once you have your lease agreements in place, you will need to make sure you are keeping on top of your portfolio and it’s performing as efficiently as possible.
LOIS is one example of a piece of lease accounting and management software that will help you not only have your portfolio at your fingertips but let you understand whether your agreements are offering the best value and if they’re compliant with the latest lease accounting standards.
9. Be Aware Of The Changes To Lease Accounting
Because lease accounting standards are in the midst of a sea-change for the first time in over a generation, the rulebook is being torn up when it comes to accounting for lease agreements.
Even the definition of what constitutes a lease and what constitutes a service agreement will be changing.
If you want to take a full and proper look at the changes, badged as part of IFRS 16, you can get up to speed in just a glance. Open this free download and see how IFRS 16 will impact your business: