In-House Leasing Arms Provide Another Point of Differentiation, Value-Add for Dealers

Competitive advantage is at the heart of every viable office technology dealership. In a landscape where resellers are touting much of the same equipment and many of the same services as the dealer down the street, developing a point of differentiation—no matter how perceptibly small—can make all the difference in winning an account.

Thus, it’s not surprising that several of the most successful, high-dollar volume dealerships are offering in-house leasing as another viable option for end-users to obtain equipment while opening the door to added profits. But it’s not just a tool for the well-heeled; dealers with sub-$10 million revenues see it as an attractive value proposition to make lease acquisitions a reality for the smallest and unestablished clientele among their customer ranks.

In this month’s State of the Industry report on leasing, we focus on a core of dealers, both large and small, that created in-house leasing arms. We learn about the hows and whys of their financing journeys and the challenges they’ve faced developing and growing their portfolios. We also invite you to check out a complementary roundtable of some of the industry’s leading leasing firms, from stand-alone financial institutions to industry manufacturers, on page 26.

In the case of Gordon Flesch Company (GFC), the Madison, Wisconsin-based dealer developed GFC Leasing so customers could have the benefits of one-vendor service from the beginning to the end of a transaction. It helped that GFC acquired a local leasing company, which enabled the dealer to furnish innovative financing options for everything under the office sun as opposed to merely printers, copiers and technology services.

The benefits are twofold, according to Jennifer Watts, GFC’s manager of leasing operations. For one, it allows the dealer to simplify and improve the leasing experience for clients. Also, it serves as a huge competitive advantage.

“It allows GFC to serve the customer beyond the initial sale and creates a long-term bond with them,” she said. “It’s a huge selling point because customers realize they can get better service and a long-term partnership from GFC, which is something they can’t get buying directly from a manufacturer.”

A majority of GFC’s challenges have been largely opaque to the client, primarily involving building out the back end operations. Investments to tie the technology together and build more robust workflows were needed due to the many new customers added via acquisitions. Technology and automation, Watts believes, will be vital moving forward.

Even now, we’ve seen more interest in leases with initial deferred payment options or more flexible terms.

– Jennifer Watts, Gordon Flesch Company

Flexibility has been one of the keys for GFC programs during the pandemic era, which appears poised to remain a factor for the foreseeable future. “Even now, we’ve seen more interest in leases with initial deferred payment options or more flexible terms,” she added.

While the company has existed for more than 65 years, RJ Young of Nashville, Tennessee, entered the leasing business a little more than 20 years ago. It was launched in conjunction with an asset-backed line of credit through the dealer’s then-banking partner. The Crunk family ownership saw a significant strategic and financial opportunity in the flexibility that comes with “holding the paper,” not to mention a vehicle for growing the office technology business.

AJ Baggot, COO for RJ Young, notes the company viewed the in-house leasing portfolio as a secure, long-term profit center, one that’s helped fund much of the dealer’s substantial acquisition growth. In fact, RJ Young holds 99% of the leases at its 32 locations. The competitive advantage realized can’t be overstated.

“This allows for significant flexibility when building large bid opportunities, rightsizing a customer’s needs or just getting creative in winning new business,” Baggot said. “It also gives us sole control of the relationship with the customer and our ability to create terms that fit the customer as well as the deals that we’re working on. We don’t regularly work with any leasing partners outside of those that we’ve inherited through leases from an acquisition.”

While the dealer doesn’t advertise specific promotions, it can provide the needed flexibility that addresses client requirements. RJ Young has made a lot of adjustments “on the fly” to assist clients hardest hit by the pandemic, offering payment deferrals, lease holidays and occasional promotions in the past.

(In-house leasing) allows for significant flexibility when building large bid opportunities, rightsizing a customer’s needs or just getting creative in winning new business.

– AJ Baggott, RJ Young

From the “some things never change” department comes the notion of creating an internal leasing company to take away market share from manufacturers that are in the business as well. This was the case in the 1970s when Edwards Business Systems (EBS) of Bethlehem, Pennsylvania, sought to compete against Xerox’s highly successful program. Now-chairman Jim Edwards devised a cost-per-copy (CPC) program that was somewhat revolutionary at the time and provided an alternative to the OEM while giving customers another option to using cash.

According to Jim Dotter, president of Virginia Business Systems (EBS’ sister company), Jim Edwards worked with Art Habeburger, the CEO of American Equipment Leasing, to develop the program. It was then used to offer clients a cancellation clause for cause should the dealer not fulfill its obligation to support the contract.

“This was effective when opening new branches as we grew and (prospects) didn’t know our company’s reputation in the marketplace,” Dotter recalled. “It was `putting your money where your mouth is’ and gave prospects confidence in moving forward with an unknown company. Occasionally, we take a customer that isn’t credit approved if we feel the risk and business plan support it, often fulfilling with off-lease equipment so (the client) can establish credit.”

Occasionally, we take a customer that isn’t credit approved if we feel the risk and business plan support it, often fulfilling with off-lease equipment so (the client) can establish credit.

– Jim Dotter, EBS/VBS

Dotter notes that through the years, the program has expanded to accommodate Fortune 500 companies, colleges, universities and school districts that required terms the traditional leasing companies wouldn’t accept. While EBS/VBS also partners with GreatAmerica, CIT and U.S. Bank, the flexibility of its in-house portfolio has helped clients weather the pandemic.

It hasn’t been an easy journey for EBS/VBS. During the 1990s, the dealer built a significant debt level with its portfolio, which was cause for concern in the bank’s eyes—despite the fact that EBS/VBS was profiting from the venture. The bank had based the dealer’s covenants and ratios on operating copier dealerships as opposed to a leasing company.

“Over the years, we‘ve pushed more toward traditional third-party leasing companies to ease our debt load and cut down on the administrative burden of running a leasing company,” Dotter added.

EBS/VBS’ CPC program evolved into a private-labeled, single payment plan (SPP) providing one invoice for equipment, maintenance, supplies, clicks, etc. under the SPP branding. Seeing the success Konica Minolta enjoyed with its One Rate program, EBS/VBS rolled out an all-you-can-eat Simplify branded offering. Fortified with no overage charges or meter readings and a static monthly invoice, it’s been a selling point for net-new clients and a strong upgrade option for existing customers.

“There are no surprises or annual increases with Simplify,” Dotter noted. “Clients like the predictability.”

In-house leasing represents over 90% of all financing deals offered by Little Rock, Arkansas-based Datamax Inc. Leasing actually predates copiers/printers in the dealer’s portfolio, as its product offering primarily consisted of mimeograph machines and offset presses when the in-house portfolio launched in 1975. It was a significant point of differentiation at the time and remains a vital value proposition for packaging equipment with services, notes Steven J. Sumner, vice president, secretary and treasurer for the dealer.

Sumner refers to the leasing arm as one of personalized service and customization for the dealer. Leases are often complicated, requiring reviews and right-sizing in order to create an exceptional customer experience. Datamax’s creativity has helped keep clients in-house.

Sumner says that one of the major benefits people see when leasing in-house with Datamax is accountability, citing the fact that “we’ll care for your technology throughout the term of the lease. The same company that you develop and acquire your technology solution from is the same company that services and cares for it. Since that’s the same company that holds your lease and to whom payments are made, accountability empowers the business relationship,” he added.

The same company that you develop and acquire your technology solution from is the same company that services and cares for it.

– Steven Sumner, Datamax

Additionally, Datamax’s flexibility has been front and center during the pandemic, offering relief programs for clients uniquely affected by COVID-19. The dealer also provided special financing programs for certain product lines and flexed its 36-, 48- and 60-month leases to 39, 51, and 63, respectively, with varied terms that proved popular with clients.

In the aftermath of the pandemic, Sumner notes the imaging industry may be facing challenges that include higher interest rates, continued supply chain disruptions and inflation. “With respect to the supply challenges, Datamax has provided interim loaner units to customers for whom lease commencements have been disrupted,” he said. “As for rising interest rates and inflation, some of the full impacts of these challenges remain uncertain for the imaging industry.”

As was the case with Datamax, copiers and printers weren’t yet on the menu at Plus Inc. when the Greenville, South Carolina-based dealership launched Piedmont Leasing in the 1980s. Typewriters and dictation equipment were the go-to offerings for Plus, according to President David Carson, and clients were keen on obtaining low-cost leases spanning 12 or 24 months. He estimates the dealer carried about 25-50 leases during those initial years of Piedmont Leasing’s operation as a stand-alone company.

Leasing capital is the primary challenge for Plus, and it’s funded out of the growth of the capital in the company. Wells Fargo and U.S. Bank are the dealer’s go-to lessors, with a lion’s share of the Piedmont business centered on used equipment and dollar-buyout leases. The in-house offering is particularly valuable for start-up clientele unable to obtain financing through one of the conventional lenders.

“If I had the capital, I would do every lease in-house,” Carson noted. “You can make a profit selling and servicing the equipment, so it just makes sense to add profit through leasing. We have a strong supply of used equipment to sell, and between our upgrade options and early buyouts, there’s just so much more flexibility to have it in-house that you don’t have with a third-party leasing company.”

We have a strong supply of used equipment to sell, and between our upgrade options and early buyouts, there’s just so much more flexibility to have it in-house that you don’t have with a third-party leasing company.

– David Carson, Plus

It’s an attractive offering for Plus’ smaller clients and those that haven’t established themselves from a credit standpoint. Carson will work with a client that wants a $3,000 device over 24 months, culminating with a dollar buyout, which guarantees profit for the dealer. IT-related in-house leases were fairly popular when it was more difficult to obtain a traditional lease, although that’s changed in recent years and the major companies have become more flexible, according to Carson.

“The dollar-buyout leases are very popular,” said Carson, who has a lease portfolio of $600,000. “It’s effective when you’re dealing with a new law firm or another customer that can’t get leasing because they’re less than two years old. If I can determine they’re good, we don’t have to jump through hoops to get them leasing.”

The dealer also benefits from a strong core of new equipment that it leases at fair market value. That helps provide a good source for used equipment along with the ability to sell to the client at lease end—either of which benefits Plus’ sales reps.

Another in-house leasing arm with 20-plus years under its belt is Centriworks, which furnishes Centriworks Financial as another option to go with its GreatAmerica and U.S. Bank partnerships. The platform was created internally, according to Centriworks CFO/CSO J. Mark DeNicola, in part to leverage financial advantages including the tax treatment for owned assets. In addition to providing monthly recurring revenues, the Knoxville, Tennessee-based dealership enjoys greater control and flexibility of transaction terms during the lease, enabling the dealer to capture contracts that weren’t possible with third-party leasing options.

(Controlling terms has) generated higher cash flows, both in the extensions of leases and the divestiture of the owned equipment.

– Mark DeNicola, Centriworks

According to DeNicola, having control and flexibility of the transaction terms is also beneficial at lease ends. “It’s generated higher cash flows, both in the extensions of leases and the divestiture of the owned equipment,” he said.

Most impressively, DeNicola points out that Centriworks hasn’t experienced significant challenges furnishing an in-house leasing option. The dealer has thrived the most in offering CPP, bundled leases and flat-rate contracts.