Most mfp (multifunction printers) are acquired using a lease as the basis for the deal. I find that many clients are not familiar with the various types of leases that are available. Here are some typical questions that I hear.
So if I lease this MFP that price includes everything? Not really. The lease price usually includes the monthly or quarterly cost for the capital value of the device. You will still need to have a support agreement in place to cover the operating costs for the duration of the lease term.
Can my lease include the support costs as well? Certainly. You can have the support based upon a given volume per month, quarter or year bundled into the lease. The good part of this is you have a regular cost you can count on each payment cycle. Some negatives also occur. You are locked into that support agreement for the term of the lease. If you volumes change (go down) you will still pay for the amount of clicks that are in the lease package. You also will not be able to change support contractors during the term.
What term should I have for a lease? This depends directly on how well you can predict your future needs for the equipment. My experience has shown that many clients are leaning to shorter lease terms as they want to refresh their equipment along with their IT infrastructure which is commonly done on a 36 month cycle. If your use is more predictable then a longer lease can work. We commonly use 48 months. I would recommend that given the rapid changes in the technology that no longer than 60 months be considered.
Can't I just upgrade any time during my lease term? The answer is a qualified yes. There are real costs however of doing an early upgrade. The remaining payments for the existing lease will be rolled into the capital calculation for the new upgraded equipment and then the total is spread over the new lease. You end up paying for both leases, although the cash flow may appear to be lower than the previous lease. If you do this a couple of times the excess capital can become a significant part of the lease. How can you protect yourself...ask for the pricing based upon keeping your current machine to end of term first...then compare how much will be charged if you decide to terminate the old lease early. Be careful with this kind of transaction. There are vendors in the industry who make this a practice and who use this as a way to keep out the competition and make more return out of each client...not always to the client's benefit.
Can I lease to buy? Yes. The end of term options are generally a $10 buyout or a Fair Market Value (FMV) lease. Under the $10 buyout you have an option to buy at the end for the amount specified. In Canada this will be treated as a capital lease and you have to account for the equipment as a capital asset. On the FMV lease it is possible to consider it as an operating lease and in Canada the lease payment is deductible as an expense. At the end of the term you can have an option to buy at the FMV. We usually offer a fixed maximum percent of the original purchase value of the MFP as the purchase value. You need to check with your vendor how their lease is structured as not all are the same.
Leasing is a sensible way to acquire depreciating technology assets as you are really just renting the utility for a period of time. Matching your lease package to your needs is important and your vendor should be doing this for you. There are some real cautions to be aware of when you are looking at leases...they are not all the same and you need to understand just what is offered.
What experience have you had with leases? What term do you usually use?