In order to acquire goods and services or turn capital assets into leased ones, users need a comprehensive financing/leasing plan. Financing is already becoming a bottleneck to getting deals done. Companies without a financing/leasing strategy will face significant unforeseen problems. Here are some key areas to address in developing such a plan:
- Organization -- Users should make sure they involve the right organizational constituents to negotiate and execute a lease, including purchasing, internal council, treasury, legal representation, and outside consultants. Leasing is a back-end business, and you can’t enter into contracts lightly. You need a management team that is committed to the process. Especially in tight markets, management reviews need to be more stringent to ensure that the particular financing option makes sense. With budget constraints, be aware of which financing alternatives exist and get a general agreement between the CIO, CFO, treasury, and legal. Have an open dialogue with these constituents.
- Relationships -- Establish or revisit relationships with multiple lessors and financing arms of major equipment vendors. Develop trusted “partnerships” with them. Existing relationships may mean nothing in the current financial climate. Several major financing companies just completely stopped doing deals this past meltdown October. Credit is tight, rates are up, and everything takes forever. Get master lease agreements in place with several sources. Even small financing vendors should be included. Try to be joined at the hip with your financing partners.
- Lease Management – Timing is everything. When a lease starts matters because when a lease ends matters. Managing a lease requires an ongoing effort that tracks the lease, ensures the terms of the lease are followed, and alerts the organization well in advance to an event that is approaching. Invoice verification is mandatory and often a headache. Users must also ensure that equipment coming off lease is properly configured, decommissioned on time, packaged, and shipped according to the terms of the lease. Users have historically done a poor job of this, making the lessors very happy because they can then charge penalties. Also, bear in mind the possibility of sub-leasing hardware assets and the frequent non-transferability of associated software.
- Asset Management – Good asset management disciplines need to be in place to ensure you know where the physical assets are, what the configuration is including upgrades, and when they are going off lease. These disciplines must provide ways to work closely with change management teams.
- Negotiations -- Everything is negotiable including when the lease starts and when you start making payments. Users should remember that everything is negotiable except the fact that you must make the payment. Clever negotiators can even make a capital lease look like a operating lease.
- Capacity on Demand – Always a disguised form of financing, it is a simple way to finance upgrades.
Action Item: Users should develop a comprehensive finance/leasing plan and avoid happenstance financing
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