How sale and leaseback could work for you
Need help determining the right route when it comes to investing in business vehicles? If your organisation has previously purchased vehicles outright, it may be worth taking a different approach and considering alternative finance options. Buying vehicles outright could be putting unnecessary financial strain on your business, but this is not, by any means, the only method of acquisition available to you.
Here’s how to make the move to contract hire, starting out with a sale and leaseback agreement.
What is sale and leaseback?
Sale and leaseback is when a company sells its purchased vehicles to a third party contract hire company. The contract hire company will offer you payment for your vehicles at the present market value and take on the ownership of the vehicles in question. The vehicles will then be leased back to you over a pre-agreed period of time.
Why choose sale and leaseback?
A healthy cash injection
First and foremost, choosing sale and leaseback means that you can expect to see a healthy amount of cash injected back into your business.
With the sale of your previously owned vehicles your cash flow will be stable and this will also improve your balance sheet status.
A sale and leaseback agreement will also remove an element of risk for your organisation. By selling your vehicles, you have effectively passed over the responsibility of vehicle disposal to the contract hire company. This means that where the residual value of the vehicles you have sold may decrease over time, you will not incur that loss. Instead, the leasing company will take on that risk for you.
With the right agreement in place, you will have access to use the vehicles that have been leased back to you but you will not have to maintain or repair the vehicles yourself.
Depending on the type of contract you choose, all routine servicing and maintenance can be included, helping to smooth cash flow as well as making life easier.
Expertise and stress-free transition
An experienced leasing company brings with it a high level of expertise in the management of business fleets. With a sale and leaseback agreement you have handed over the responsibility of the vehicles to your leasing company and with their years of expertise, your fleet will be efficiently managed and your drivers given the support required to work effectively. With an expert leasing company, there should be no interruption to your internal processes or the day-to-day work of your drivers. The transition from owning the vehicles to leasing them should be seamless and any additional support given to your drivers such as maintenance and training should be clearly communicated by your leasing company.
Are there any disadvantages to sales and leaseback?
Excess mileage fees
When you purchase your own fleet vehicles, of course, there is no limitation on the mileage you travel. However, when you enter into a contract hire agreement you will need to estimate your annual mileage as accurately as possible. This will help you to avoid excess mileage fees at the end of your lease agreement.
Under the terms and conditions of any sale and leaseback agreement you’ll find that the leasing company stipulates that vehicles used should be returned at the end of the pre-agreed period in a suitable condition. This is usually referred to as “fair wear and tear” in line with the age of the vehicle and the amount of mileage that it has covered. If any of your vehicles are damaged above the agreed level of fair wear and tear then you will incur charges. However, this should be avoided with the right policy in place for drivers. You would have suffered the cost of this damage even if you owned the vehicles directly, either through repairs or loss of value on sale.
Sale and leaseback considered
Although mileage should be carefully calculated and damage to vehicles avoided where possible, a sale and leaseback is a practical way of making the move from outright purchase to contract hire for business vehicles. The benefit of a sale and leaseback agreement is ultimately a healthy cash injection and the chance to organise a lease agreement that works with your requirements – whether that’s a more stringent approach to your fleet processes or fixed monthly costs to help with budgeting.