Leases

Many of the office equipment leases that were in place prior to Covid19 will be coming to term shortly.  Those were leases that would have started from 2017-2019 and were termed for 60 months.

We're all familiar with the Evergreen Clause and those of us that are pro's in the business understand why we ask for a copy of the original lease.  We're looking for the language for the return of the equipment to the leasing company.

Evergreen Clause

There is an Evergreen Clause on most office equipment leases. The Evergreen clause can be different for each lease, however what I see most is that the lessee needs to contact the lessor not less than 90 days and not more than 120 days prior to the end of the lease.  In addition if the lessor is not notified the lease will renew for 12 months.  Egads!, can you image a client being held hostage because they did not notify in time?

COVID19 Trap

What I call the Covid19 trap is not intentional from the lessor or the dealer that help procure the language of the lease.  The trap was created when COVID19 reared it's ugly head.  With businesses closed and funds were not flowing many leasing company offered a furlough of the lease payments.  Those furloughs were usually two to three months where the lessee did not have to make a payment(s).  Of course the payment did not go away but was added to extend the lease by additional months.

Thus with reps asking a copy of the lease, there are many of us (including me) that are may not have asked the client if they accepted a furlough of the lease during COVID19.  The furlough really comes into play when we're attempting to upgrade a competitors devices.  Thus when we are advising the client for the terms and notification of the Evergreen clause we could be off by two to three months of when the client needs to send the lease return notification to the lessor.

Avoid the Trap

A few helpful tips for upgrading those leases

• Ask the client/lessee if they had a COVID19 furlough of the lease
  • If they did, you need to ask for documentation of the furlough
  • If they did not, you may want to add a covenant to the order doc that they stated there was no furlough in place
• Ask the client/lessee to call the leasing company an verify the dates for lease return notification.  Of course get this in writing via email or document to cover your ass
• I believe it's always a best practice with all leases to always get the notification (furloughed or not) to get documentation from the leasing company for the dates that the return letter will be accepted

Notification of Lease Return

While I was doing my research I spoke to a rep in the leasing business and two tenured sales reps. Everyone gave me a different interpretation of the notification date.  Of course we were not talking about a lease that had a COVID19 furlough applied.

• Was it 90 days prior to the date that the lease was signed?
• Was it 90 days prior to the date the lease delivery and acceptance was signed?
• Was it 90 days prior to the date the the leasing company counter signed the lease (this usually happens when the lease is counter signed by the lessor)?

I want to believe the date we need is when the lessor counter signed the lease. Of course I would like to hears from others to verify.

One interested note was brought up by a Print4Pay Hotel member.  He stated that the leasing companies do not tell the client how to notify them.  Whether by fax, in writing (snail mail), or certified mail.

Hope this helps others, pleas hit the reply section for comments!

-=Good Selling=-

see attached file

Thought I would put this together for our newbies. In addition I can direct my net new prospects to this blog so they can understand more about office equipment leases. There are three that I find the most popular.

Finance Equipment Lease:  Not the most popular lease in our industry but it's used for clients that want to own the equipment at the end of the term for a fixed price.  Often referred to as a $1.00 purchase option.  In addition the finance lease can also be used to take advantage of Section 179.  A finance lease aka dollar buyout will have have the highest interest rate.  Thus expect to pay more on the monthly payment but at the end of the term you'll own the equipment.

Beware: Even though your purchase option is $1.00 there are some companies that will renew the lease for 12 months if you do not notify them at the end of the original term

FMV Equipment Lease: The most popular lease in our industry because the FMV (Fair Market Value) gives the lowest interest rate and option to purchase at the end of the term.

There are four options at the end of the FMV lease.

• upgrade to a new lease with new equipment
• buy the equipment from the dealer or the leasing company
• return the equipment and pay the freight back to the dealer or leasing company
• auto renewal of lease
  • If the dealer or leasing company is not notified ( x amount of days prior to end of lease) or your intentions to return, buy or upgrade.  The lease will renew for "x" amount of month's dictated by the terms of one the lease.  Renewals can range from 30 days to one year.  I would say 50% are in the 30-60 days renewals with the rest at one year renewals.
• Beware: In my opinion the 12 month renewal is a trap.  It's designed to hold you hostage if your company fails to notify them in time.  If your company wants to go elsewhere they will hold you to the letter of the law demanding that you pay the 12 payments.  In addition they have the upper hand when you fail to notify in time.  If you want out of the 12 months you will have to agree to their price.

FMV or Finance Lease That Includes Service and Supplies: Office equipment lease that has gained popularity in recent years.  These are leases that have x amount of pages for black and color (maintenance and supplies) that are included each month. 

The base monthly lease cost will usually include "x" amount of black and color pages each month. If you go over the pages there is an additional cost for "overages".  For example, the lease includes 10,000 black (minimum volume) and 1,000 color (minimum volume) in the base prices.  If you go over there is an overage per page cost stated on the lease. If the end monthly volume is 12K for black and 2K for color, the next invoice will reflect the overage billing for 2,000 pages of black and 1,000 color at the going rate. If you don't attain the minimum volumes there is no credit issue (most cases).

• Beware: Most if not all of these leases have a built in escalation clause.  The wording of "we may" increase the cost on the annual renewal in most cases means they will.  It's important to know that the base monthly payment can increase each year.  I've seen and heard of double digit increases each year. My personal opinion is to stay away from these if you can, it not make sure the annual rates of escalation are in the t's and c's of the the agreement.

Special Notes:

• I've never seen a regular FMV or Finance lease without maintenance and supplies with an auto escalation clause, however that does not mean they don't exist.
• Do business with a reputable company
• Read the T's and C's (understand the t's and c's if not ask questions)
• Ask for references or visit their Linkedin page to view their references

Feel free to email me or post a response if you have questions apost@p4photel.com.  Please also keep in mind that if you're in an existing lease I may be able to help you lower those lease payments.

-=Good Selling=-

see attached document

see attached file

I can't keep track of the price increases,  especially when it comes to fuel and food.  Probably the most essential staples of our daily lives.

The Fed is set to push a rate increase of 1% sometime next week.  I guess I'm kind of fortunate because that increase will coincide with the end of my month.

I don't have time to reflect about how the rate will affect me.  I need to address how the fed increase will increase my sales, and increase my GP.  I have a statement up on my wall that reads.

"I'd Rather Manage My Life, Than to Let Life Manage Mine"

Once I had wind of the increase,  I put a couple of calls out last week and was finally able to speak to my Lease Guru today. My Guru was in hiding the four months because of a special project that is finally completed.  Anyway it was great to connect again.

One Percent

"With the one percent increase from Fed this month, how will that affect my existing lease rates?", was the question I posed to my Guru.  I shot out a number before of .50 cents per thousand before he reached for his calculator.  Fifty cents per thousand is .0005, which means if your existing lease rate is .0200, then the new rate factor will be .0205.  That means the interest in the new rate factor will cost a client 50 cents for every $1,000 borrowed each month.  A deal for $15,000 will cost the client another $7.50 per month.  Over the 60 months the cost adds up to $450.00.  Okay it's not that bad, but what about if you have ten copiers ready to drop in the next couple of weeks or months?  That increase is a cool $4,500 increase.

By the way after my Leasing Guru finished with his calculator he told me the increase in the rate factor will be .00053. which is fifty-three cents per $1,000.

My point is that you (we) need to make our client(s) aware of how much more they will pay of they wait. No one, yes no one wants to pay more.  This is a great way to turn a bad think into a good opportunity NOW.

Personally, I've never seen rates that I could remember this high. Keep reminding the clients of these three items.

• Two to Three fed rates hikes to happen this year
• Spell out what the increase will cost them if they wait
• Leasing is a hedge against rising inflation
• Section 179, it's not to early to take advantage of this NOW
  • Many MFPs are three to five months on back order (It's almost month number 8 of the year)

Add Another Line To Your Proposal

Add a disclaimer that we can't hold financing quotes for more than 30 days, in fact put a line in about the impending Fed increase and that you will have to re-quote. Many leasing companies have lowered the time on their approval from 90 days to 30 days.

-=Good Selling=-

Pretty cool date today.  The last day before vacation, the first day of the new quarter and my first order for new quarter would be a great start the last day of vacation and the first day of the quarter, right?

My first appointment I thought would be  wishy washy as best with an existing account.  Seems there was an new Chief IT director with my account. I had the ominous email a week to ten days ago asking for all sorts of info on their copiers. When I get that type of email it's usually not one of those great appointment.

Rather than conducting the meeting first and then organizing the date for the client.  I opted to organize all of the data points that they required in a spreadsheet aka dashboard and then scheduled the virtual meeting. I wanted to be ready because many of these appointments can blow up and I wanted to get this done quickly since I had things to fry before my vacation.  Thirty minutes before the start of the virtual meeting I emailed the spreadsheet aka dashboard of the 12 devices with our fleet.

The Meeting

I wasn't ready for the immediate response when the client thanked me for the following.

• Answering his email to schedule a review of their devices
• Scheduling a meeting to review the fleet of devices within a week
• Emailing the dashboard of device with lease start, lease end, monthly payment, device #ID, model number term of lease, lease term date, cost per page for black and color, along with last billing for cycle with pricing

My client explained that this he was rather new with the company and there are two fleets from different vendors (one of them me) and he needed to get a handle on all of the devices as soon as possible to he could get his plan in place.

My client then told me that the other vendor is for a Canon fleet and he's still waiting for someone to call or email him back after two weeks. I could tell he was impressed with the response and the how detailed the information was.

I'll take a trip back to the ominous email because in most cases I've been on the end that is told that changes are being made.  That was my gut, however I did the work because that's my job.  We need to do the work from start to finish even if the outcome is not what we wanted.

After the review, my client picked out one of the locations that had two devices and a pretty hefty volume with both leases terming in the next 3-10 months.  It went something like this, "he's what I want, I want redundancy at all of my locations  so let's start with this one. Where I have the one 60 ppm color, give me two 50ppm color MFPs and while we're at it also replaced the 30 ppm color as well."

Well, that was stunning, and also a nice bonus to happen the first day of the new quarter and the last day before my vacation. It's a verbal and I know that verbals are not set in stone, but I got him all the docs that he needs in order to move forward when he hits the office in the AM tomorrow.

-=Good Selling=-

click image for web link

Today, I'm with Rob & Tod with Amur Equipment Finance as we chat about how Amur can help dealers get more deals approved with their unique approach"

In the last few days I've seen some horrible contracts/agreements/leases that clients have signed for their copiers.  My first thought was to blame the leasing companies for these lame leases, but it's not the leasing companies fault. In fact it's the fault of the dealer because the dealer has the ability to structure many of the t's and c's of the lease.

The Roll Over aka Evergreen Clause

In one case the lease has a roll over clause like most leases do, however this lease has a roll over of one year (12 payments) if they are notified in time.  Note that most roll over clauses are 30 - 90 days of the client does not send a letter of intent to the leasing company.

Some dealers think that this type of clause is protecting them from a competitor upgrading that lease. Clients see it differently as they owe another 12 payments for copiers that are already 5 years old.  The thought of paying another $7K more led the client to make the statement of "I'll pay the $7K but will never do business with them again".  Yikes, thus how did this clause protect the upgrade? The client will upgrade, but with a different vendor. 

My next issue is with the sales person not telling the client that there is a  12 month "roll over" clause in the lease.  Now, I could be wrong about with blaming the sales person because that person may have not read the lease. Thus, how could they inform the client about the "roll over"?  Point of the matter is that "we" as sales people need to read the lease terms, and ask questions if needed. 

These are great questions to ask.  Why is the roll over 12 months, can we kill the roll over if they upgrade with us, what happens if the client does not want to sign the lease with the 12 month roll over, is there something else we can offer?  This may sound harsh but if you're not asking these questions as a rep you are cooking your own goose for upgrades down the road.

63 Month Lease Terms

Did we really need to present a 63 month term?  Why do we have 63 month terms?  Why is it that we are always shooting for lowest possible payment to the client?  Do we present 63 months just because they had a 63 month term?  Think about what we're doing with a 63 month term!  It's bad enough that we'll wait 5 years for the upgrade but what about the extra dollars that the client will pay for 3 months extra?  My plan is simple always quote shorter term leases, start with 36 months and be ready with 48 and 60 month terms.  Let the client tell you they want a longer term.  If the client asks for 63 month term, please explain why they don't want the 63 months along with how much extra they will pay.  Be the consultant and not the sales person. The client will appreciate the recommendation.

Escalation of Lease and Maintenance Costs

In this day and age of where the client can research or find out anything, is there really a need for lease hardware and maintenance to have an annual escalation cost that exceeds 10% each year? This is what I came across this week.  You wonder why many clients hate copier dealers? This has got to be at the top of the list. 

Processing Fee aka Shipping Fee

In addition one of the clients had an annual invoice for shipping and a "processing fee" of $200. I did some checking and this annual charge was also subject to an escalation fee of 15% each year. One cartridge of toner for this device yields 30K in pages, thus the client had to pay $200 to ship two toners!  Next year they will pay $230. Really is this how we do business now?

Clients Want A Unique Buying Experience

We read and hear about this all of the time.  What client wants to be blind sided with addition lease fees?  Explanation of these fees should be conducted at the time the client signs the lease.  I will ask clients if they've ever signed an office equipment lease, and if they say no, I'll explain what the doc fee is and why they need insurance on the lease. Explaining this upfront gives that client some satisfaction since they will not be blindsided with additional fee's on the first invoice. 

It's so frustrating to see leases and agreements like these. If clients were educated on what the pros and the cons of each lease and each maintenance agreement they could make good business decisions.  Seems to me that too clients don't read the t's and c's and this helps to compound the problem of some terrible leases and agreements.

Do you have any horror lease stories?  Would love to hear about them.

-=Good Selling=-

Below is a blog I wrote about a year ago on the old blog site. I'll be moving these over from time to time.

As we still struggle to keep margins on equipment, maybe we need to become better advocates for presenting shorter terms for leasing equipment. I've been tracking all of my sales for purchases and leases; 92% of them involve leasing the equipment with a third-party leasing provider.

Of that 92%, 89% of the leases I've written were for 60 months. I would tend to think that, give or take a few percent, this might be applicable to most of us.

60 months/5 years is a long time, right?

Dang, I'm tired of my cell phone after two years and my car in about three. Technology changes so quickly nowadays that I want the latest and greatest new car features, whether it's better gas mileage, more comfort, or new technology. The same is true of my cell phone; after only two years, I would like to step up to new technology that may enhance my lifestyle or make me more productive. Wouldn't our customers want the latest technology with their copiers and MFP's also?

Why are we not quoting and selling more 24 or 36-month leases?

Look at it this way: if you put a customer into a 60-month lease, you'll have to wait at least four years until you or the customer has an upgrade path, and 54 months would be the prime time to upgrade. Even at 4 years, the upgrade path may not be as rosy of a picture for your customer.

Putting your customer into a 36-month lease means that the upgrade path is now reduced to two years, and 30 months would be the prime time to upgrade.

A lot can happen when you have to wait 48-54 months to upgrade the system. Items like a major breakdown, a poor service call, your contact being replaced by someone else, and the added pressure from other companies prospecting the same account can put your upgrade in jeopardy. A shorter-term lease will reduce these risks for you.

Take a $20,000 lease that is booked for 60 months, and the customer will pay $24,000 over the term of the lease. Compared to a 36-month lease, the customer will pay about $20,500 (factor of .0284). That's a $3,500 savings to the customer!

So How Can We Get Better at Selling 36-Month Leases?

There's a lot we can do. The first that comes to mind is the savings on interest; that should wake someone up. The second would be to explain the additional costs in maintenance/supply agreements that the customer would incur. Most of us sell maintenance agreements that have an auto-escalator clause that allows the maintenance/supply agreement or the cost per page agreement to increase every year. These annual increases can be anywhere from 5%-10% per year. Do the math!

We'll make it simple. That $20,000 copier/MFP that's pumping out 200,000 pages per year will mean the first-year contract cost is $2,000. With a 7% escalator clause, the 2nd-year cost is $2,140, the third-year cost is $2,289.80, the fourth-year is $2,450, and the last year is $2,621. Add them up, and over years four and five, the customer would pay an additional $1,071 for maintenance and supplies over a 60-month lease.

Invoicing: our customer will have to process at least another 24 invoices. With a small to medium-sized business, the cost to process that invoice and pay it is $15-$35 per invoice. Let's use $20 per invoice, and we've added another $480 over the 60-month lease cost.

In total, that $20K lease will cost your customer an additional $5,000! You've got to have this financial talk with your customer. In addition, if you upgrade the 36-month lease, you will lower the customer's cost of maintenance and supplies cost/cost per page with the new system, and there will probably be a few new features that will increase the customer's productivity!

Show the Savings to Your Account

That $5,000 savings over 60 months would be $83.33 per month. It's a no-brainer. Would the customer like to spend 25% more on a $20K lease? I doubt it. Keep in mind that the 36-month lease rate is the most competitive lease rate from all of the leasing companies; they score additional profit for 24, 48, and 60-month leases. I'd rather have a chance to go back to my customer in 24-30 months rather than 48 to 54.

-=Good Selling=-