As a dealer of office equipment, you understand that nothing in business is static. Industries change, the needs of your customers evolve, and you may experience some staff growth and/or turnover within your teams internally. When it comes time to sell office equipment or services, it’s important to remember that not everyone may have the same level of clarity on the options at their disposal.
Most office equipment dealers will agree that a majority of their customers are already familiar with the concept of financing or leasing office equipment. They’ve been leasing printers or copiers for years, in fact! But the industry is now feeling a demand for new ancillary services like document management or managed IT. Many of your customers may not consider that these services can be financed just like their copiers are. The same can be said for your new, or even existing sale reps. Do they fully understand the benefits of offering a monthly payment to their customers?
Now more than ever, it’s important that office equipment dealers be diligent in communicating and educating their ever-evolving customer base and growing staff. So let’s go back to basics. What information should your customer consider when choosing between financing their equipment services and paying with cash?
Impact to Cash Flow
Cash flow is defined as the total amount of money being transferred into and out of a business, especially affecting liquidity. Projecting cash flow can be helpful to your customers when deciding whether to buy office equipment or services for cash, or to lease.
When making the “benefits of leasing vs. buying equipment” analysis, one of the most important factors to consider is the opportunity cost of purchasing new equipment. Purchasing $10,000 of equipment in cash means $10,000 of your available budget is no longer liquid — you can’t spend it without selling the equipment and assuming the depreciation costs.
Paying upfront for equipment directly impacts the amount of cash your customers will have available to invest back into their business. If they deplete their cash cushion, they will have less flexibility when it comes to responding to unforeseen expenditures or investing in new opportunities to grow their businesses. Paying through credit or a bank loan may also be an option, but much like paying with cash, either will still tie up access to funds in the form of available credit.
Leasing, on the other hand, allows your customers to acquire equipment with zero money down. While the cost of the equipment might be a little higher in the long run, because equipment is acquired and installed immediately, it can be profitable from day one while preserving cash reserves for their business.
Planning for Obsolescence
At some point in the life cycle of your customer’s equipment, it will come time to upgrade. While paying cash up front will take a monthly payment out of the picture, it won’t protect against obsolescence.
One big advantage of leasing is working around obsolescence. Obsolescence happens when an object, service, or practice is no longer wanted even though it may still be in a good working order. If your customer anticipates replacing fixed assets frequently, they will want to lease instead of purchase. This way your customer can stay up to date with newer and better technology by choosing the lease term they prefer.
Under many leases, upgrades are built into the plan. Many offer easy add-on or trade ups on equipment which will provide more flexibility and stability for your customers. As a dealer, this also benefits you. With opportunities to upgrade built into the agreement, you are naturally positioned to retain that customer when they reach the end of their lease.
Tax Considerations
Customers that choose to finance your equipment, software, or services using a $1 out purchase option lease or an Equipment Finance Agreement, are able to pay in installments over the lease term. Additionally, due to the Tax Cuts and Jobs Act of 2017, they are able to deduct 100% of the purchase price for the tax year in which the equipment was put into service.
While a cash purchase will still allow for this, it does require customers to tie up funds in equipment when it could instead be invested elsewhere — for instance, in advertising, hiring, or even into a fund where it can collect interest and make money for their business.
Accounting for Ongoing Maintenance
Make sure your customers are aware that if they choose to pay cash for equipment, they’ll also need to consider how they will pay for ongoing maintenance. Since maintenance is not always predictable, paying for maintenance with cash will make business planning and budgeting more difficult, as there is no way to predict when maintenance will be needed and for what cost.
Through leasing, maintenance can be bundled into the monthly cost. This normalizes expenditures for your customers so they may rest easy knowing there will be no unexpected charges if equipment breaks down.
