Skip to main content

In my territory I have seen many competitive sales people use Step Leases to make quick, high profit sales.

Typically, they will find a customer who is paying say $200.00 for a Black only copier. They will quickly offer to replace it with a new colour copier for $125.00 per month x66 with a Large prepaid copy block and many free cases of paper.

The customer thinks it is a great deal and signs.

The sales person does not clearly inform the customer that in usually the 36th month, their payments will "step up" to say $375.00 per month.

If the customer objects, the sales person says that as long as you keep renewing with me every 36 months, your payments will always remain the same. Of course, they do not say that the back end liability keeps getting bigger.

Sometimes companies have a seperate Purchasing Dept from Accounts Payable. The Accounts Payable checks to make sure that the first $125.00 payment is correct and pays the invoice. In Leasing, once the client makes that first payment, they are considered to be in full knowledge and acceptance of the transaction.

The customer can complain and threaten all they want about the new $375.00 payment but there is generally no escaping this liability.

Sometimes Leasing companies will call a new customer to confirm the copier is indeed on site but they usually do not discuss the Step Lease.

Step Leases are usually agreed to on a Side Letter which is outside of the standard lease document.

I often encounter these clients in my sales calls. Sometimes they have horrendous Balance of Payments, many times the value of the copier, with the current copier working unreliably. All I can do is offer to flip them into a new copier, at reasonable market prices, including the Balance of Payments in my new quote.

It is these kinds of competitive sales reps who give honest Copier sales reps in my territory a bad reputation.
Original Post

Replies sorted oldest to newest

The worst one I saw was $180k BOP on a $15k copier. He had been "step leased" several times. The previous Office Manager refused to discuss copier leases with anyone. Eventually he was replaced and the new Office Manager could not believe the situation he was in.

Desperate copier vendors like to promote step leases because the big copy Block gives them a large extra chunk of cash up front. The large amounts of paper promised are usually more than the customer can use and another source of quick cash.
Are we on the same wave length here??

Usually a 3-5 means that service and supplies are provided for three years, after three years the customer then has to pay for service, thus raising the cost to them. ie: $100 per month for 60 months includes 3 years of supplies and service for 100K, after the third year or whenever the supplies and service expire, the rep will come back in and refi the remaining 24 months with a new 3-5, they can usually sell this at a lower price that what the customer would have had to pay for adding service. The rep gets the new deal and signs the customer up for another 60 months at lets say $200 per month, and then this happens again in three years.

If this is the cse this is a sure fire way to never ever get a third upgrade out of the customer and puts you at risk for losing the account forever.
I've heard of similar leases, I think the intention of such leases was to have low payments for a business that has low revenue now, but expects to expand in the next two years and be bringing in additional money to cover the inflated payments.

They can, of course be used by disreputable people.

As far as the lease itself being unethical, I'd say it's simply a tool and the right or wrong of it depends upon its use.
Disclosure, disclosure, disclosure is the name of the game. I've not run into any step leases (yet) but know they are out there. I make it a policy to go over the T&C's of the simpliest lease agreement with the customer so that they understand full well. Can't tell you how many customers who were sold by former reps had now idea what the terms of their lease. To some it was a big surprise. Honesty and plain language is the best policy.
If you find yourself getting blown away by a competitive quote being so much cheaper, a Step Lease might be in play.

These type of compettive players know you are the incumbent in an account and well thought of. The only way they can get at your account is to come in at half your price with a large copy block and free paper included.

You are immediately put on the defensive because the DM thinks they see such a good deal. The only way you can get back on top of this account, is to use the rappore you have built with the customer and ask hard questions to determine the true finacial structure of the competitive quote.
Not only are the less than ethical copier sales people in the world, there are just as bad Lease sales people. When these two parties collude together the customers best interests are never at the top of the list.

You cannot assume that the good Lease sales rep you work with has the same personal value system as the competition.

You cannot assume that the good lease company you work with has a good local sales rep.

You cannot assume that at the end of the lease, the Lease sales person you started with is still there at the end. The end of Lease Sales person, might be friends with your worst competitior and is secretly feeding him confidential information.

You cannot assume that your entire lease database is not sold to a 3rd party competitor for quick cash. I know, I bought such a list for $1k with 42 pages of lease details.
Depending on the Lease vendor, they may provide cleverly designed Lease documents, with two payments streams on the document.

The bad copier sales person fills in the agreed Payment #1 amount with the customer and leaves the Payment #2 line blank. The customer does not even see Payment #2 because it is blank.

The customner signs the lease.

Back at the office, this same sales person fills in Payment #2 with the Step Lease amount, and submits it to the Leasing company.

Working with a less than ethical Lease sales rep, the Lease company only checks that the equipment has been installed and asks nothing about the payments.

The Lease sales rep "jams" the lease through his system to get the deal funded and earn his commission.

The customer makes their first payment and the deal is done. 37 months later, they see the increased payment and bitterly complain. There is nothing they can do but vow never to buy from that company again. But people come and go in companies and the Step Lease is forgotten.

Unfortunately, many companies are embarrased to admit to another copier sales rep that they have been taken. So embarrased they sign another Step lease to escape the increased payment and put the whole issue off until another day.
One of the biggest victims of Step Leases are Non Profit agencies and charities. The people there turn over frequently, are not lease savy and beleive the salesperson when he says you can upgrade the lease before the paymnents increase. These poorly qualified Decision Makers, do not fully understand the consequences of the back end obligation they have just taken on.

Business that are lease savy with experience are much less likely to fall to this kind of lease activity.
Last edited by SalesServiceGuy
I have also heard of reps who "sell" a 36 month term but leave the # of months blank and then fill in 60 months back at the office.
Things like this is why our reps never fill out the documents. The lease company we use does all the paperwork and sends it to the customer for signature. The best way to not be accused of mishandling something is to never handle it in the first place.

Add Reply

Post
×
×
×
×
Link copied to your clipboard.
×
×