Timing is Everything...

It’s standard practice to lease your photcopiers, and spread the capital cost, but there are many factors to consider before you put your signature to a lease document.

If you think the lease period of your photocopier agreement is irrelevant you could be in for a nasty shock. It is extremely common to be offered a 60 month lease, often with a matching Service Agreement period and it appears more attractive because the quarterly/annual costs seem lower. They won’t be for long. A 60 month lease can lead to a slow suffocation of your budget, equipment quality and future freedom of choice

Medium/large photocopiers are changed on average every 36 months and not every 60 months. That means the next time you change the balance of 24 months is added to the new 60 month period and refinanced. Therefore you have paid 60 months’ leasing company interest for the privilege of keeping the equipment 36 months. Had you leased the equipment over 36 months you would have saved two years’ finance interest.

It gets worse...
After 36 months you now have a situation where the equipment needs changing and instead of being at the end of a 36 month agreement you have 24 months remaining which is added to your new equipment cost and financed again.
This is where the quality of your equipment and its reliability begins to suffer. You now need to replace the equipment over the same term, ideally at the same cost, but with 24 months outstanding on your existing lease which is 40 per cent of the original contract. How can you upgrade all the equipment for the equivalent of 60 per cent of the original lease cost? You can’t.

The supplier then puts a proposal to you that only upgrades some of the machines because otherwise you won’t accept his offer as the costs to replace all would rocket. This means some of your original equipment has to last another 60 months until the second lease expires. This is virtually impossible and now you are on an ever increasing cost and unreliability spiral that becomes very difficult to manage.
This is all because the salesman, who knows the average life of his photocopiers, has taken the line of least resistance with his first agreement by proposing a longer, “cheaper” term. His advice should have been: “Don’t sign a 60 month agreement.” It is worth knowing that salesmen earn commission when they change your lease so they are happy to change it as often as possible. They know you will have to upgrade regardless of the term of your lease and they may also have asked you to sign a service agreement with restrictive terms that compound your problems with settlement penalties.

Below is a comparison based on a £10,000 photocopier replaced every 36 months on three occasions using 36 month leases and another replaced every 36 months but using 60 month leases again three times. Look at the difference and whilst doing so bear in mind that the 60 month lease was supposed to be cheaper.

1.Cost using 36 month leases =£34,200.00
2.Cost using 60 month leases =£42,001.20

So for the privilege of leasing the same equipment over 60 months and not 36 months you put an £8,000 dent in the budget which is nearly the cost of the equipment you first leased. How is 60 months cheaper?