LEASE-PURCHASE, FULL PAYOUT, CAPITAL LEASE
A lease-purchase, full payout lease or capital leasing agreement spreads out the terms of payment for equipment. It is a time payment plan. At the end of the payment period, the enterprise obtains title to the hardware and software. The enterprise will be able to use the hardware and software and to spread payments over time to ease the financial burden of making large IT acquisitions.
Lease-purchasing may be the preferred option if:
* The dollar value of the equipment is substantial and its useful life to the enterprise is longer than three years.
* The flexibility of spreading out payments would be beneficial.
* The enterprise does not have staff and systems to track assets and manage the lease.
CAPTIVE LEASING COMPANY
In a lease from a captive leasing company, the lessor offering terms is also the manufacturer of the equipment. Most communications equipment manufacturers have a captive finance and leasing company. The vendor sometimes offers some payment relief to close the sale. In these cases, there are usually strict limitations on the ability to use and add non-manufacturer parts or upgrades.
A captive lease has a possibility of locking the enterprise into a single vendor. The vendor of the LAN switches may force the customer to buy the vendor’s storage, IP telephony, Unified Communication and/or software applications. The customer therefore can not select the best-of-breed products from multiple vendors. This forces the customer to assume the single vendor has a continually robust and expanding product line--an optimistic view. It also assumes that this vendor has best of breed products.
THE ADVANTAGES OF LEASING
The advantages to leasing are multifold. There are both technology and financial reasons to lease. The primary reasons to lease are:
* A lease can smooth out budget fluctuations and preserve cash.
* A lease provides an alternative source of capital in addition to bank lines of credit.
* A lease will facilitate rapid deployment of new and emerging technologies.
* A lease will facilitate standardization efforts across the enterprise.
* A lease provides an effective disposal strategy for used hardware at the end of the lease.
* A lease offers tax advantages where the entire monthly payment can be written off as an expense or capitalized depending on the lease type.
Leasing will allow the financial useful life of the communications assets to be synchronized with the realities of the constantly changing communications environment. This reduces the risk and financial exposure for the enterprise. Leasing for 3-4 years is a good balance of the TCO, technology trends and enterprise demands.
Regulatory and compliance requirements have stimulated the communications organization to implement effective asset management linked to the financial reporting systems, which makes leasing much easier to embrace. The improved asset management and financial tracking integrate well with enterprises’ change management and technology turnover processes.
Leasing improves the technology infrastructure management as an operating cost instead of as an asset based investment. When the communications infrastructure is treated as a fixed asset, then the entrprise mindset may limit the flexibility so important in remaining current with communications technologies. Leasing retains the flexibility to respond to the market forces that produce rapid product changes.
Gary Audin is president of Delphi, Inc. consultancy, and is a regular blogger on No Jitter. An expanded version of this article can be found at http://presidio.com/company/company_case_studies.htm
