Asset financing or leasing, as it is better known, is funding used by commercial organisations to obtain tangible assets. These assets can be very diverse in nature and include office equipment, manufacturing plant, vehicles and catering equipment through to aircraft.
It is the third most common source of finance for businesses and organisations after bank overdrafts and loans, and provides significant cash flow advantages and tax benefits for those using it.
The Finance and Leasing Association (FLA) is the leading trade association of finance lenders and credit brokers in Europe and is considered as the industry watchdog.
As well as banks, building societies and their subsidiaries, membership of the FLA also includes the customer finance arms of retailers and manufacturing companies as well as independent firms. All are bound by a strict code of practice, designed to ensure that member organisations abide by the rules and act ethically.
Nefarious operators will sometimes commit clients to paying – possibly over a long period – for goods that are simply unsuitable, overpriced or have included within the payment schedule outstanding balances from previous agreements. The FLA advises that you should not sign an agreement that is unclear and / or ambiguous as you may find exiting such an agreement tricky – it’s very much a case of buyer beware.
The FLA recommends that before signing a Lease Contract you should:
1. Make clear within your own organisation who can sign such agreements.
2. Ensure that the supplier of any equipment involved is reputable and an accredited supplier of the manufacturer.
3. Ensure with the supplier that the equipment to be used is new, or if not that you are satisfied that used or refurbished equipment is suitable.
4. Always ensure that the completed contract corresponds with any verbal or written quotation supplied by the sales person or negotiator involved.
5. Read your contract carefully before signing it and ensure that it is correct, particularly in respect of the rental amount and the period of hire. Never sign an agreement which is not fully completed.
6. Make sure you understand and agree with all terms and conditions of the contract and, if you are unsure, seek advice.
7. Make sure you understand the costs involved and whether the agreement allows for any automatic increases in charges.
8. Check the period of hire and any notice period required for its termination and the settlement terms to be applied on early termination.
9. Ensure that the length of the agreement is no longer than the anticipated useful life of the equipment involved.
10. Check whether the agreement includes the supply of other goods or service(s) and whether this will continue after any minimum or initial period of hire. If you are entering into a separate contract for the provision of service you should check its terms.
11. If any amendments are made to your contract, or a further contract is required to replace an existing agreement – do not sign until you have made the same checks as you did for the original agreement.
The advice is clear. Before authorising a Lease Contract take a few moments to compare the FLA’s Check List with the document you are intending to sign. We’d also suggest that prior to signing any new supplier agreement, recourse to a third party such as ourselves, to sense check and apply some external validation that the agreement and pricing is reasonable.
For more information, contact us.
Article by: Zoe Willis