Copier Leasing Finance
In hopes to demystify copier leasing and finance, I am going to discusss the state of equipment leasing popularity and offer reasons for the trend, identify lease terms and bring to light some of the fine print constructs of a lease, and wrap up a discussion of considerations that should be considered before signing a copier lease contract.
Leasing has become the deFacto standard of business equipment finance. Copier leasing is big business, accounting for billions of dollars of revenue for copier dealers and finance companies alike. In fact, very few copier sales representatives will lead their presentation with any other method of copier finance than a lease. Furthermore, some copier sales people won’t even discuss outright purchase prices with a prospective business customer and avoid the discussion like its the plague. It’s practically a given that nobody outright purchases business equipment except for brand new businesses, those with limited credit or those where money is no object at all. In the past 26 years, of the thousands of copier acquisitions I have been party to, witnessed or otherwise been involved, the overwhelming vast majority have been leases, accounting for more than 95% of new equipment placements and substantial replacments. Hands down, a room of business people will, and indeed have, opted to lease finance given an alternative to a 1/3, and a third and a 1/3 purchase. Why is leasing so popular?
The short answer is that purchasing a copier for business is a major purchase. It’s been compared to purchasing a car on many occasions over the years. Arguably, the analogy isn’t far off base for many businesses. A more in depth answer is this: A copier is a necessary evil, with a limited useful life. That is to say, a network printer copier has a technological life obsolescence built into it, after which time it becomes less useful for its original purpose. Similarly, the computer systems with which these copiers are integrated, also have a threshold of time during which their value is realized. The asset is simply used up while it plays well with the other systems and remains compatible. Commonly, five years is the amount of time a copier lasts in a business office. While 5 years is not a scientific certainty for your copier to last, the IRS for some reason has settled on 5 years as a standard depreciation period for this class of asset and leasing companies all offer 60 month leasing terms on new copiers. The more integrated a technology oriented device is, the more likely it is that the life expectancy will not exceed that 5 year mark. Its fair to say, there is a planned obsolescence in the technology of today. Therefore, it is important to prepare for that inevitable devaluation or uselessness of the items we secure for our current use, to be prudent and successful for the long term. Simplicity in planning is therefore another important, though much less discussed reason for copier leasing over purchasing. Leasing for a set term takes the guess work out of the question – when do I get a new copier? When the lease is up, it will be time for a new copier. New technology comes in, the cycle repeats itself with a renewed outlook and the most modern equipment and total compatibility with the state of the art technical wizardry of the day.
After all, why purchase a depreciating asset? Why use precious capital to spend thousands on a network copier when that money could be used for more suitable projects? So, it makes smart business sense that if we are to lease equipment, we should also understand what a lease is. Specifically, what is a copier lease? What does a lease include? What does the lease exclude and what are the pitfalls of leasing?
Leasing in its most simple definition is paying a fixed monthly amount or “rent” for equipment for a specified period.
A copier lease may be 12 months, 24, 36, 48 or 60 months. Other terms are possible, but much less common for leasing, say a Bizhub or Ricoh Mp mode, for example. Digicor, Inc regularly sets customers up on a 39 month lease for refurbished or smaller commercial copiers with a $1.00 buyout. By contrast, a new Ricoh Mp4003 will typically be leased for 60 months. The period or term varies according to several factors:
- Invoice cost of the equipment
- New versus “refurbished” or “demo” machine
- Customer’s preference and budget
- Residual value at the end of the lease
- End of lease option
- Existing rate factor terms extended to the dealer from the lessor
Monthly costs versus lease term – It is important to understand the relationship between the monthly payment and the length of time, or lease term. Its an inverse relationship. As the lease term goes up in months, the payment amount goes down. Although a lease is not a purchase agreement, the principals of time and interest still apply. The total value of the equipment has a rate factor applied to arrive at a payment amount for the term desired.