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Thursday, January 3, 2008
MFP Leasing Companies Crying About Portfolio's

I was going to do a little work on some quotes tonight, and then I received an email from a leasing company. Many leasing companies are not accepting applications for equipment from Mortgage Brokers, Real Estate Agents, Title Insurance Companies, & Residential Construction Companies.

Here's my take on this
http://mfpsolutions.blogspot.com/2008/01/mfp-leasing-co...es-crying-about.html
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Art, I would sincerely consider not badgering lease companies like this. As we all know times in these industries are tough. I personally work with some major title companies which are closing down offices and such. The exceptional service/support from USXL far surpasses most "A" level lease companies. Concentrate on managed print services and diversify industries.
Larry:

If you consider it badgering then so be it. I consider it as information that everyone needs to know. Not taking applications from one vertical market is absurb.

Also its about time we all woke up to "FMV" leases and why they came about in the first place. "FMV" leases are designed to keep the factories busy and too keep the dollars coming for theleasing industry as a whole.

I respect your comment, however I still disagree with the practices that are in place. Whats next if the economy suffers more, then we will be notified that leasing companies will not accept applications for the AEC market, and then another. Its got to stop here.
Art, you know I love ya like a brother but I have to agree with Larry on this one. I have very conservative values and I believe that the entity taking on the risk, gets to make the rules. Obviously, we have the choice whether to except them.

You know as well as I do that print-4-pay accounts are tougher to finance. Why? Because they are higher risk. It has always been that way because relatively speaking, most small print shops have little invested and can close up shop in a heart beat...higher risk, harder to finance.

I also disagree that FMV's were created for the leasing companies. They were created first and foremost to create the lowest payment possible. Secondly, to create an easy upgrade path every 36, 48 or 60 months. I think having a purchase option guaranteed is a good thing but I want the guarantee to be to me, the dealer, not to the customer. On all the deals we write, we have negotiated up front what the back-end purchase option is going to be but the customer contract still reads FMV. We try to never pass that on to the customer. We also get the lion's share of renewals should the equipment stay past expiration. Profitability-wise, we are making almost as much G.P. at the back end of leases as we did at the front end. That is whay I don't want to sell anything that is $1.00 purchase option to the customer because I don't want my customers to ever own anything.
I understand both sides of this argument, but I’m having trouble adopting either side as my definitive stance.

I agree with Jim’s assertion that the entity taking the risk (the leasing company) has the right to set the rules that affect their investment. However, it’s hard to argue with Art’s contention that says, “How can I build a relationship with a leasing company when I’m only offering them the “dirty business” that my primary leasing company won’t even look at?” Remember how we all began chomping at the bit when the senior V.P. of marketing for IKON said she wasn’t truly interested in serving smaller businesses? I feel this is the same attitude that the leasing companies in question are adopting, and it kind of rubs me the wrong way. I could completely understand if the leasing entity would say “Due to the high risk associated with these industries, our lease rates will need to be higher when considering these deals.” I would also certainly hope that any leasing company I partnered with would look at each deal individually, rather than place a whole industry in the “not interested” pile. For instance, I realize that the real estate industry is in a slump, but I also have some real estate clients that are large enough that they will easily weather the storm (and have done so in the past). Telling these clients that we are flat-out not interested in their business is a pretty dangerous precedent to set, especially if we then want to turn around and ask them to understand that all copier salespeople are not “hardware slingers” and some of us are in this industry for the long haul.

The next point that Art’s blog and Jim’s response touches on is the validity of the FMV lease. My industry training has taught me that the FMV lease is the best way to protect my client base, and my comp plan even rewards me for “locking in” my clients with FMV leases. However, knowing what we know about the leasing industry as well as the document imaging industry, how may of us would enter into a FMV copier lease for a business we personally owned? I, for one, would avoid it like the plague! Therefore, how can we say we are really doing what is best for our clients by suggesting these leases?
I wonder if I should begin looking at 10% buyout options for my clients that will take the time to sit down with me and discuss what is best for them (of course, the clients that are only interested in the cheapest monthly payment…yes, I’ve got them, too…will probably just get offered a FMV rate).

If I am to argue the other side of the coin, the FMV lease offers tax benefits to my clients that a $1 out or a 10% purchase option do not provide. However, do the tax benefits outweigh the fact that the client is financially locked in to the incumbent vendor at lease end? Of course, as Jim stated, the commissioned salesperson in me doesn’t ever want my client to own the equipment by way of a $1 out lease, but the consultative salesperson in me wonders if that should really be my call to make, or should this be the client’s decision?

My final thought on the FMV lease is this: If our service after the sale is as good as we say it is, why would we need to “lock in” a client with a FMV lease? How many times have we talked to potential clients who were unhappy with the service they receive from their current document imaging vendor, but due to their FMV lease, they have no alternative other than to wait out the lease (all the while living with less than satisfactory service) and ship the equipment back at lease end. I wonder if the FMV lease better serves less reputable copier companies than those of us who build strong client relationships by following up with the service and support we promised at the time of the sale.

I’ve been in the industry for almost 10 years and love what I do for a living, but sometimes I feel that the bad reputation we get as copier salespeople is well deserved. Our industry dictates that we don’t always do what is best for the client, but rather what protects our interest as the servicing vendor.

Of course, I also like to make money… Wink
Good points all and well articulated. However, I don't understand what you mean when you suggest that an FMV lease "locks in" a customer. If you use the right lease company, your customer can pay-off the lease anytime they want, (without paying the FMV). With the company we use (Clune Leasing) the pay-off is even lower than the sum of payments. And since we don't wrap maintenance in, our customers have as much freedom to go elsewhere as they can possibly have. All I want to "lock in" is a monthly payment into their budget, something I find my customers want to do as well.
It appears to me that the problems dealers and their customers have with leasing has more to do with the verbiage of the contract than it does with whether it is an FMV or 10% buy-out lease.
Hey Jim,

Spun like a true sales manager! (of course, I respect that!)

Seriously though, maybe I’m referring to a practice that doesn’t apply to Clune. Most leasing companies I’ve worked against (when trying to help a client that is unhappy with their current vendor/service) do not allow for early payoff and return of equipment. Therefore, the only option to the client for an early termination is a full buyout of the equipment (usually not a very attractive offer). When you speak of Clune clients paying off the lease at anytime they want and the payoff being less than the sum of the remaining payments, does that mean this option is given to the client? (which would make my ramblings here completely unfounded) ...or only in the form of an upgrade to the dealer that wrote the lease (which would validate my concerns)? If we’re referring to an upgrade to the incumbent dealer, that’s what I’m talking about when I say we’re “locking them in”. Obviously, the incumbent dealer has a huge financial advantage over any other potential vendors looking to earn a new client’s business and upgrade their equipment. Not that I’m against gross profit, but again, your statement that your company makes almost as much GP on the back end as you do up front is my basis for questioning FMV leases and why I question whether I would ever enter into a FMV lease with a company of my own.

Please don’t take my ramblings here as being completely naïve, because I do understand that gross profit is a good thing. However, I’m wondering if the ways GP is hidden in FMV leases for the dealer and the leasing company is truly in the best interest of the client.

Just thinking out loud…please feel free to take me to school here!

(BTW, Jim…your blog this weekend was excellent. I copied it to my hard drive so that when I leave street sales and move to sales management I can use it as a training tool. You ‘da man!)
I totally agree that most people's disatisfaction is with their lease...but not our customers and yes they can pay off their lease independent of us or renewing with us. Our profits at the back come from month-to-month renewals or "re-ups" for another 12 or 24 months. These are renewals that the customer chooses to participate in. They are not contractually obligated. The difference is we get the profits when it happens, not the lease company.

My whole point is, there are FMV's out there that give everything you seek without doing 10% or $1.00 buy-outs...you don't have to throw the baby out with the water.
I am going to move away from FMV, due to the fact that where I work we have no sales manager, and not much help when the end of the term comes for clients leases.

What I mean is, I have to calculate the remaining term of payments, especially if we can't get a pay off sheet from the customer of the leasing company. Over the years, I have seen leasing companies not allow for machines to be returned for lates fees of $100, even after the lease termination has been sent. The customer thinks they owe nothing when we give them the check and because they have a late fee, the leasing company does not send the renewal and they are billed for another month. This creates one upset customer. My company will not budge on the late payment charge and will allow the fire to roar. Once I get drawn in the customer has extra payments that are owned and late charges.

I spend more time outting some of these fires out. By selling $1.00 out leases I can then be assured that I will never have to deal with these problems again. On the other hand if I had a salemanager like Jim, I'm sure he would have programs in place so things like this do not happen, or we would have a special program with Clune or someone like that.
I'm still not sure I'm ready to completely give up on the FMV lease (as I mentioned earlier, my comp plan rewards me for writing FMV leases), but I do intend to give Clune a call. I did a search of this site and found a thread from 2005 in which Jim was touting the benefits of Clune. I guess it's my fault for not calling them then.

Jim, do you have a name at Clune you'd like me to ask for (it's always good to have a leasing partner that owes you a favor!).

Brian
Kevin Clune is the president. His dad started the business 50 years ago. He's who I always talk to which is pretty unique that you can talk to the president of the lease company if you have a question or concern. You should hear some of the stories he brings back from association meetings...how companies brag about profits from auto renewals, late fees, etc.

Even though you can talk to the president don't get the impression that they are small. However, you will always get a person when you call, not voice prompts, and you can choose to always work with the same person should you choose to.

Tell Kevin I said Hi.

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