Firstly, asset financing companies are more regulated than before and must now register with the Financial Conduct Authority (the new financial Regulatory body replacing the FSA). The development of superior asset management tools and techniques has also helped ensure that the practice is far more transparent than in the past.
It is also the case that a lot of potential problems can be easily avoided through a number of concrete steps that should be taken prior to any agreement. Although the details of asset financing arrangements can vary, some general principles apply universally. For starters, it is crucial that businesses know, in detail, what they are getting themselves into, paying attention to the fine details of any contract. Insisting on transparency from the very start, and paying close attention to the provisions set out in the initial agreement, is key. A lot of the problems that arise from leasing have to do with mismatched expectations. Asset financing companies should lay out all terms and costs clearly at the start of the process. If they don’t, run a mile.
There are two main traps companies fall into when it comes to this. The first is not paying due attention to the fees involved. It is always important to look beyond headline rates as in certain cases these can mask hidden costs. To take a specific example with regard to lease arrangements where assets will need to be returned, it is important to ensure that all costs related to returning the equipment are fully detailed in the original offering. In many cases there will be a final payment, or penalties for late delivery of the assets.
Businesses should always ensure these are taken account of. They should also check whether transportation costs are included, and what the costs of extension rental will be. On the leasing example, it is worth bearing in mind that some less-than-reputable companies have a history of inflating residual value to reduce the monthly charge and then imposing conditions that make it extremely difficult for the equipment to be returned at the end of the contract, meaning that the client continues paying for a longer period than intended.
The second trap is to fail to pay due attention to issues that may at first seem a long way off, i.e. issues that will arise towards or at the end of contract. A lot of hiccups stem from a failure to consider processes. To take again the example of a lease where assets are to be returned does the solution include logistics services for returns (such as transportation, or in the case of computers etc. packaging)” If not, it will be important to determine what precisely needs to be returned and in what conditions. Other important items to check in this case would be whether there is any flexibility with regard to the returns window and how much notice your company will be given when the lease is coming to an end. But whatever the solution, even in cases where assets will be retained following a lease or for hire purchase arrangements, it is important to comb over the practicalities.
Contracts and fees aside, the other universal principle behind asset financing is to have a plan in place for managing assets and costs throughout the life of the arrangement. It is quite common for the individual responsible for signing an agreement to have left the company before the arrangements comes to an end, thus placing the process in the hands of a new employee. Keeping track of assets and liabilities over a long period is essential to avoid incurring additional costs, and will likely require the use of a comprehensive and up-to-date asset management tool. This enables users to capture and track relevant data relating to each and every asset whether this be location, age, power consumption, make, condition, and so on and makes it instantly and conveniently available to those that need to know.
Ultimately, it is critical to ensure transparency up front, pay close attention to the small print, and keep a keen eye on assets and liabilities throughout the process. Businesses that follow these steps will stand to benefit from asset financing. A good thing, given that in the current economic environment it is often the best means to help businesses survive, invest, and grow.
Catherine Dawson is Marketing Director at Maxxia Ltd.