Choosing the Right Business Software for Lease Accounting.

Introduction

Financial services businesses are subject to ever-increasing regulations. Leasing is not an exception, new accounting standards such as IFRS 16 and ASC 841, lessors need to level up their accounting. Lessors need to adopt the right business software for lease accounting to manage their growing portfolios. 

Software leasing solutions that are fit for purpose enable lessors to streamline their business operations, comply with accounting standards, and generate real-time financial reports accurately. Let us explore the transformative impact of technology on the leasing industry.

Some Key Factors in Choosing Lease Accounting Software

1. Automation Capabilities When evaluating lease accounting software, it is essential to validate the level of automation possible. Automation of business processes minimizes errors and enables your resources to work on value-added activities. 

A lessor with over 1,000 leases can automate their billing, payments, contract modifications, and accounting to generate real-time financial reporting.

Some of the functions that lessors can automate are:

• Generation of  payment schedules
• Sending customer invoices
• Midlife modifications
• Accounting

2. Compliance with Accounting Standards New accounting standards for lessors like IFRS 16 and ASC 842 require them to increase their focus on compliance. Noncompliance is costly and results in investor confidence loss. 

Lease accounting software should comply with the current accounting standards, providing automatic updates to the solution based on the latest regulatory requirements. 

3. Integration with Existing Systems Your lease accounting system should be able to integrate with your existing solutions easily. Some of these systems are:

• Origination through customer relationship management (CRM) systems
• Financial reporting through general ledger or enterprise resource planning (ERP) systems
• Data analysis through business intelligence (BI) systems

4. Reporting and Analytics Capabilities Leassors planning to grow their business and profitability require robust and effective reporting with real-time analytics to identify cost optimization or optimization opportunities.

For example, asset utilization and profitability are important metrics for certain equipment leases that could impact profitability.

5. Scalability Lessors are increasing their lease book by acquiring new customers and purchasing portfolios. They need lease accounting solutions that scale based on their need to increase the number of leases, assets, and users without impacting operations. Cloud-based solutions are capable of scaling at will.

Lease Accounting Software Adoption

• A report by Allied Market Research estimates that the global lease accounting software market is expected to reach $7.2 billion by 2028, driven by the increasing need for compliance with IFRS 16 and ASC 842 standards.
• A PwC study found that 45% of companies with large leasing portfolios plan to invest in new technology, including AI and automation, to manage lease accounting more efficiently over the next five years.

Challenges in Selecting Lease Accounting Software

1. Cost of Implementation Most small and medium-sized lessors find the cost of implementing a new lease accounting software expensive including implementation consultants but also the effort expended by their resources to guide the implementation team over months.

2. Ensuring Data Security Lessors are very particular about data security as they need to ensure encryption of data, disaster recovery, and authentication of users logging into the system. 

Conclusion

Lessors are faced with a complex and critical decision when selecting the right business software for lease accounting for their business. Automation, compliance, integration, and scalability are some of the considerations.

Rapid introduction of new technologies like AI, cloud computing, and blockchain could impact lease accounting and operations. Lessors must identify solutions with the correct focus on new technologies to remain competitive in the evolving leasing landscape.

Citations

1. Allied Market Research. “Lease Accounting Software Market Outlook to 2028.” Allied Market Research, 2021.
2. PwC. “Technology Trends in Lease Accounting: A Five-Year Outlook.” PwC Global Survey, 2023.