What does rolling your business copier (MFP) lease mean? This is the practice of encouraging a lease holder to replace their copier or MFP with a new unit prior to the end of the current lease. It is a common practice for some companies and can lead to significant additional cost for lessees.
Don't get me wrong. There are times when an early replacement makes sense...your machine is not sized correctly for your current needs....maybe it is time for colour and you have a few months to go on an older B&W....or maybe the unit is just not holding up to the use you are making of it. Replacing a unit in these situations early may be a sensible route to take but your vendor should be telling you exactly what the costs of that early replacement are.
Don't worry about it, we are taking care of your old lease! We can replace your current machine with a new machine and all you have to do is sign this new agreement for X months! Look, your payment per month can be less than you currently are paying and you get a new machine early!
Has anyone given you these lines? They are all ones I have heard from clients of other vendors. So what are they not telling you?
Simple. Leases do not magically go away because a sales rep has decided to sell you a new machine. The leasing company wants its money till the end of the term...they provided the machine, paid the vendor and they expect to get paid. So if YOU are not paying who is? Well you can be sure the new vendor (or your current vendor) is not going to eat this cost. Where does it go?
Into your new lease! That's right. You are paying this cost only it has been spread over the payments in your new agreement for the new machine. Magic! The payments are gone for the old lease and you are paying the same or less, right? Well sort of. Let's do some quick math.
You leased a $15,000 copier - MFP for 60 months and are paying $310.95 per month on the lease. At month 48 the sales rep comes to you and offers you a new equivalent machine for the same cost per month and tells you the old lease will go away. So how does it work?
Over the 48 months the purchase price of that equivalent unit has fallen by 25% and the new machine is really only costing $11,250 to acquire. (The impact of technology and competition has seriously dropped the capital cost of most copier - MFP units over the past 5 years.) The rep adds the balance of the existing lease payments to the new purchase price and finances this over a new lease for 60 months (or if the numbers don't quite work maybe they suggest 66 months) making a "purchase" value in the new lease $14,981.40. The new lease cost is $310.54 per month. Essentially the same as before, but you have a new machine.
Good deal right? Not for sure.
If the lease did not have the "roll" in it, the new machine would have cost you only $233.21 per month, a difference of $77.33 per month or $4,639.65 over the term of the new lease. If your old machine was not doing what was needed, then this might be a worthwhile expenditure. If it was perfectly ok and you were not pressed to change then maybe waiting a few months or till the end of the old lease might have been a better business decision.
Where this get's even more scary is we have seen situations where clients of some vendors have been "rolled" two or three times in a row. What happens with this situation is the amount of payout cost built into the sequence of leases can grow to as much as 75% or more of the new lease. This "air" distorts the true cost of the equipment to the client. Think of it. Only 25% of the lease is paying for the equipment they need.
There are some vendors in the industry where the sales reps keep a spreadsheet going that shows the cross over point on their client leases where the new payment will match the old and this is when they start pushing their client to upgrade. Unwary clients can easily get mulled into regular early replacement, never knowing that they are paying thousands of dollars more for their leased equipment than they had to.
How do you avoid this?
- First, ask all vendors to give you a price for the new equipment WITHOUT termination of the existing lease. Once you have this number you can start negotiations around the value of the early termination.
- Second, don't get convinced to replace functioning equipment early if you don't have a pressing business reason for doing so.
- Third, if your vendor does not offer to advise you on what the costs of the early termination will be, then don't renew with them and find another vendor who will give you full disclosure.
Leases do not magically disappear! You know this but can get convinced by a slick sales person that it just might happen in your case. Be cautious if this is what is offered. I won't say it never happens but it certainly does not happen as often as some sales people in this industry will lead you to believe.
Take care and watch your lease terminations. Oh! The copier industry is not the only place where this happens...we'll talk about mailing machines another day.