Be it printers, computers, or software, when your customers set out to buy office technology, they have many choices ahead. They’ll need to determine what it is they’ll need, who they’ll buy it from, what their budget is, and whether they’ll acquire their equipment via cash or financing. As an office technology dealer, it’s up to you to help them through the sales process so when it’s time to make their decision, they are confident they are equipped to make the right choice for their business.
Many businesses appreciate the ability to lease their office equipment instead of paying for it outright with cash. New office technology can mean a significant investment for buyers, so being able to pay for it over a longer timeframe through smaller, more manageable monthly installments is an attractive option to most. Even if they have the cash to buy it outright, there are other reasons they may lease – leasing can help preserve their cash flow and there can also be tax benefits – just to name a few.
The type of lease a customer uses to acquire new equipment will ultimately determine whether or not they have a purchase option at the end of their contract. Their choice will also have an impact on their monthly payment amount as well as the ease at which upgrades can be made.
As a dealer of office technology offering leasing as a payment option, it’s important to understand the various lease types available to your customers so you can set them up with a solution that takes their buying preferences into consideration. At the same time, you must stay mindful of the nature of the technology you are selling to them. With so much convergence happening between the office technology and IT spaces, the scope of products and solutions many dealers sell has widened beyond standard multi-function printers. As you add new products and services into your offerings, you need to consider the rate at which the technology that supports these new products will evolve and how that may impact the customer’s future needs for upgrades on the equipment, hardware or software they are purchasing.
So once your customer is ready to make a financed purchase from your office technology dealership, how can you be sure to provide them with a lease agreement that suits their intent and addresses the nuances of the technology they wish to buy? In today’s blog, we’ll go over the various lease options you can present to your customers as you build them a financing agreement. We’ll cover the most popular types of lease agreements and provide some color around their differences as they impact your customer’s choices come end of term.
A Rental Lease Agreement
This type of lease operates much like it sounds – it’s treated like a rental. For the sake of an example, we’ll compare it to a lease on an apartment. Though a tenant pays monthly rent to occupy the living space, they do not own it and have no desire to own it in the future. Similarly, rental agreements require a monthly payment for the use of equipment during a set period of time. These monthly payments may be recognized as rent expense since the equipment is being used rather than owned. Upon completion of the agreement, your customer has three options:
What Options Do My Customers Have At The End of Term on a Rental Agreement?
Upgrade. Your customer can choose to upgrade and rent new equipment from you. If they choose this option, you’ll roll the purchase option and any remaining payments of the original agreement into the financing of the second rental agreement.
Return. Once all payments have been made, your customer can decide they’d like to return the equipment at their expense.
Renew. The end user may also decide to continue using the equipment as is. In this scenario, the contract goes into renewals and the customer will continue to make their payments each month to cover the cost of their continued use of the equipment.
A rental agreement works well for customers who have no desire to own the equipment they are leasing. Upgrades are also very simple through this type of lease, which is why it is a popular choice for hardware running on technology that advances at a fast pace.
$1 Buyout Lease
A $1 Buyout Lease, also referred to as a ‘Conditional Sale Lease,’ includes a guaranteed or stated amount paid to a lessor called a payment upon termination. These leases do have higher payments, as the end user is paying with the intent to own the equipment over the life of the lease.
What Options Do My Customers Have At The End Of A $1 Buyout Lease?
This type of agreement works best if the customer knows upfront that they wish to own the equipment at the end of the lease term. There is no renewal period with this option. If your customer is not in need of frequent upgrades, or the technology they are purchasing maintains its value for a longer period of time, then this choice makes a lot of sense.
Fair Market Value (FMV) Lease
FMV (Fair Market Value) leases, also known as ‘True Leases’ or ‘Operating Leases,’ allow your customer the option to purchase the equipment for its fair market value at the end of their lease. These leases tend to have smaller regular payments which are calculated from lower lease rates, however they normally include larger end of term residuals.
Through a Fair Market Value lease, the customer will pay you a monthly fee to use the equipment you supply. In this option, the customer is not financing or paying toward ownership of the asset at the end of the lease term.
What Options Do My Customers Have at End-of-Term on a FMV Lease?
Upgrade. When your customer reaches the end of their contract on an FMV lease, they can also choose to upgrade their equipment to a newer model and continue doing business with you. In this option, the end user can roll the fair market value dollar amount and any remaining payments of the original lease into the financing of the second lease.
Buyout. Once your customer has made all the required payments, they may choose to pay the Fair Market Value in order to own the equipment.
Renew. If your customer is happy with their current equipment and do not want to bother with an upgrade, they can continue to use the equipment just has they have been. In these instances, the contract will go into renewals where they will continue to pay the monthly cost for leasing the equipment.
Return. After all payments have been made, and with prior notification per the language of the lease document, your customer may choose to return the equipment at their expense.
If a low monthly payment is important to your customer, a Fair Market Value lease may be the right choice for them. This lease type also works well for customers who hope to upgrade to new equipment or technology on a more frequent schedule because maintains the flexibility for an easy upgrade process.
As you build out your contracts, be sure you help your customers think beyond their budget to consider the big picture. Make sure the lease option you choose makes sense for the products and services you are selling them. Help your customers to consider the nature of the technology being purchased and their long-term plan. By doing so, you’ll avoid end of term frustrations and set yourself up to deliver an exceptional customer experience that will drive loyalty and return business.
For more information on Leasing Baskics and the Benefits of Leasing, please check out the below resources:
Office Equipment Leasing 101: An Introduction to Lease Financing
Office Equipment Leasing vs. Cash Purchase: What Factors Should Your Customers Be Considering?
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