Office Document Strategies Blog

Over Holding On MFP Lease Costs Unnecessary Dollars

Posted by Lee Kirkby on Fri, Apr 19, 2013 @ 08:04 AM

Canadian Dollars On Wings  One of the trends we are seeing is a tendency for some clients to over hold on expiring MFP leases.  What do I mean by over holding?  Simply a tendency to ignore the end of the lease, move into an over holding situation as far as the leasing company is concerned and to continue to pay the same lease payment month to month or quarter to quarter while continuing to use the equipment.

Of course in the process of dealing with clients we take great pains to advise them when their leases are coming due and to enter into discussions about their go forward situation.  Unfortunately at times clients ignore our efforts and just continue to pay lease bills and seek our sanction to renew support while they 'make up their mind' about what they want to do. 

When this situation lasts for a month or so it does not usually become critical but when it persists for months on end it starts to become serious for our clients. 

Here's why.

Leasing companies treat end of lease over holds in a couple of interesting ways.  First they will keep billing the same amount on going for each new payment period when there is no notice from a client on the intention to return equipment.  For them this is simply found money and they are not going to be too aggessive at turning off this tap.  Secondly, they do not apply these payments to the capital value or residual on the lease. 

Let's do some math.

You have a four year fair market value lease with an estimated 15% residual at the end of the lease.  Your payment on the monthly lease is $100 plus taxes.  We'll ignore taxes for simplicity.  This lease would reflect a capital purchase value of approximately $4100 for the device being leased.  Total lease payment value is $4800 for the term which is what is paid if the leased multifunction printer is returned at the end of the lease.  Residual value on the unit at the lease end at the 15% estimate would max out at $615.

If the client decides what they would like to do with the device prior to lease end then the device can be returned and their obligations and costs end, moving on to the new solution designed to meet their ongoing needs.  Total cost $4800.

In an over holding situation the client continues to pay the $100 per month until they address the situation.  Total cost under this scenario is $6000.

Most often if I client wishes to retain use of a device after the lease ends the dealer will work out a suitable extension by taking control of the leased product from the leasing company and often can offer the extension at a lower rate.  Alternatively, they may offer the client the option to buy the device and continue its use.

If the over hold is only a couple of months then it is not too serious.  When it stretches out to a year or more then the client costs themselves substantial money. 

In the example a one year rental extension would have cost the client about $65 a month and would have included most of the support cost of the device except some overage costs for excess prints. Total cost for 60 months under this scenario is $5580.

If they had purchased it they could have done so for around $615 which is the equivalent of 6 months payments on the lease. Total cost for this scenario is $5415 and they can continue to use the device as long as they want.

Either way they would save between 40 and 50% on the overage term by just working with the dealer to have the extra time worked into a mutually agreeable contract.

No break on over holding.

Worse still, if they now decided they have paid enough and want to get something other than utility from their payment the leasing company will not give them a break on the residual without a lot of negotiation.  From their prespective the client has simply agreed to continue to pay for the use of the device they have been supplied.  Extra payments after the expiry of the lease do not reduce the residual due for purchase. Of course the machine can be returned to the leasing company but it is still subject to any performance terms that are included in the lease.

Why do companies do this?

Often it is done because the people making the decision do not understand the consequences of just holding on.  I think another factor is that sometimes the sales person, or other representative of the dealer, advising them at the end of the lease is seen as just trying to get them to 'buy something new', not looking out for the client's interest.  Of course people are busy and often the mfp lease is not seen as a high priority, especially if the device is working ok and the support for the equipment has been good.

We have tried a number of avenues to make sure clients have all of the facts when they make these decisions.  Unfortunately, we cannot force clients to pay attention and sometimes we see them ending up paying out money they did not have to if they had given the situation their interest earlier.  It seems a shame to me when a client gets into this situation and I fight hard not to have it happen but unfortunately it does.  It is hard to understand why someone would just voluntarily give the leasing company excess money when there are lower cost ways to deal with the situation.

Have you ever over held a lease?  Are you paying more than you need to?  If you are a dealer how do you address these issues?

Lee K

Pay as Your go printer rental plan

Sign Up for Office Document Strategies Blog

Topics: Multifunction Printer, MFP, leasing, Lease return