Contracts to keep equipment working in top shape range from a month-to-month plan to a 3-4 year fixed price agreement.
Which do you recommend for your customer? When equipment is leased, customers must agree to keep a maintenance plan in place. Leasing companies have the right to require their equipment be maintained in good working condition. Ownership of the equipment remains with the leasing company until equipment is returned or purchased by the customer.
The Lessee/customer is
responsible for all maintenance, insurance and taxes.
One Size Does Not Fit All
If the equipment and the revenue it will generate are new service offerings for your prospect, consider a conservative recommendation. Make the lease length and maintenance term fit low volume production. Consider a stepped up program on the maintenance portion. This allows for flexibility and renegotiation. Sometimes the leasing company can also structure lease payments lower in the first 12-months and then increase during the remainder of the lease.
Too long an agreement with a low fixed volume commitment can trap a customer in paying too much when usage exceeds the low volume minimums. The lease payment may be comfortable for your customer but the maintenance is killing their cash flow.
Too short a lease payment plan with high volume usage can result in a low maintenance or supply cost per production unit but a high lease cost. That can create a collection battle for the leasing company. Lease late fees can add 10% to the monthly payment.
Stretching the lease term means lower monthly payments. The problem for customers comes when the equipment becomes obsolete. Customers are stuck making maintenance and lease payments long after the equipment has the value of a boat anchor sitting on the bottom of a lake.
Do your homework before making a recommendation. Consider the following details when you conduct your fact-finding mission with your customer.
1. Cash flow available for both
lease and maintenance payments.
Mary A. Redmond provides highly specialized information for corporations, managers and dealers who negotiate and manage leases. With 28 years in the leasing industry, including 21 working for the largest leasing companies in the U.S., Mary knows leasing. You may reach Mary at 913-422-7775 or firstname.lastname@example.org
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