Innovative Equipment Leasing Models: Flexible Options Reshaping Access to Assets

Introduction

Manufacturers manage their business to conserve available cash. It is not feasible for them to make capital investments to support changes in their customer demands. To achieve their goals, they require innovative solutions to procure equipment.

Lessors are stepping in by developing innovative solutions requested by their customers. Customers need strategic partners, not financers, to address their changing demands. The demands include short-term equipment needs, seasonal cash flows, and asset management. Changes in the structure of these deals impact the risk profile, necessitating the creation of new risk assessment and management tools.

Leasing innovations can be categorized based on drivers:

Cash flow

• Seasonal
• Pay per use
• Short term
• Project based

Ownership

• Lease to own
• Asset sharing

Technology and asset management

• Equipment as a Service (EaaS)
• Subscription leasing
• Upgrade (Technology Refresh)
• Green leasing
  
  

Seasonal

In the agriculture industry, cash flow is not streamlined but seasonal. After investing throughout the year, the cash inflows occur during the harvesting season, a few times a year. Lessors need to structure programs with seasonal cash flows to match repayment with the seasonal harvest.

Pay-Per-Use Leasing

Paying based on utilization or consumption enables lessees to manage their cash flow and profitability. This is prevalent in the office equipment industry.

Lessees managing offices and factories find that paying for copiers and printers on usage helps them limit unutilized equipment. If some copiers and printers are not being used, the lessor can take them back. This allows lessees to consolidate their operations. Lessors can, in turn, deploy this equipment with other lessees who need additional capacity.

Short-Term and Project-Based Leasing

Some projects require equipment for a short period or for the duration of the project. The project may be in a remote location, and transportation costs and maintenance of owned equipment may not be feasible or cost-effective.

Leasing equipment for short-term or project-term is the best option. These leases can include clauses making the lessor maintain the equipment.

 For lessors, making the equipment available to multiple lessees can increase asset utilization. The value to the lessor will increase with each lease. This approach is common in the construction and transportation industries.

Lease-to-Own Programs

For critical equipment, lease-to-own programs provide the lessee the ability to procure equipment without upfront costs.

The lessor may insist on a guaranteed purchase at the end of the term or at least a guarantee if there is no well-established secondary market. In some cases, the lessee may modify the equipment. 

This approach applies to specialized equipment or furniture where the remaining value at the end of the term is not conducive to resale.

Asset Sharing

On the other hand, lease-to-own applies where the lessee is not interested in owning the equipment. The lessee is interested in using the asset for a limited period.

In the case of car rental at a location that is not your primary location, you may be travelling for a few days or weeks. Procuring the vehicle for the long term is not desirable or feasible.

The lessor takes responsibility for maintaining the vehicle. They provide the car for the duration you require and take it back for sharing with others at the end of your term.

 Technology enablers like GPS help the lessor track the vehicle’s location.

Equipment-as-a-Service (EaaS)

The EaaS model applies to the telecom industry. The manufacturer of telecom equipment is different from the service provider.

 For the service provider to maintain the entire system with guaranteed uptime and the latest technology could be complex. They may leverage the manufacturer/lessor to provide the complete solution with uptime and performance guarantees. These agreements may be longer-term agreements where both parties can benefit from the upfront investment.

Subscription Leasing

Subscription leasing is taking a leaf from software-as-a-service. When the lessor or provider of the service rapidly innovates or keeps adding services, and the cost is not borne by a single or small group of customers, it is considered a service innovation.The value to the lessee is the availability of the product or service, which is being enhanced at no additional cost or effort. They can choose whether to use the new services or not. 

The other big advantage for lessees is their ability to scale up or down based on demand for their services.

Upgrade Leasing (Technology Refresh Programs)

With the rapid advancement of technology, some manufacturers are creating optimized or improved versions of their products multiple times a year.

 Lessees using existing equipment desire to get the optimal performance by upgrading to the latest version. Manufacturers/lessors need adoption of their new products to both validate their effectiveness and create demand.

Both manufacturers and lessors create these programs, making it easy for lessees or users to obtain the latest models by replacing existing equipment. The existing equipment may be refurbished or made available to other lessees looking for value deals.

Green Leasing (Sustainability-Linked Agreements)

ESG has been mandated by some governments. Organizations are taking it upon themselves to create a more sustainable environment. This requires measuring energy efficiency and emissions.

Lessees investing in these initiatives can make their cash flows predictable by lessors and manufacturers offering leasing programs. The costs are offset by incentives and rebates.

The Technology Enabler: Equipment Lease Software

To support these types of leasing innovations, you must work with an advanced equipment solution that enables lessors to:

• Set up and manage complex payment schedules – seasonal, step-up, step-down, etc.
• Integrate with technologies to track asset location, condition, and performance.
• Improve cash flows by automating billings and collections.
• Real-time monitoring of key performance indicators provides tools to improve asset utilization and profitability.

Technology should enable you to move faster by creating programs as they are needed. The regulatory environment is constantly increasing, and compliance is also critical.

Conclusion

As the industry progresses from simple financing contracts into customer-led solutions, lessors need to adapt. Lessors making available innovative leasing solutions can become strategic partners. They build long-term customer relationships while increasing their profitability.

As customer preferences change, their new needs require them to work with alternative partners who can meet their needs.