Jargon buster | asset finance & leasing terminology2020-05-05T07:13:43+00:00

Jargon buster

| A | B | C | D | E | F | G | H | I | L | M | N | O | P | R | S | T | U | V | W

Term Definition
A (index)
Accident management A service to provide assistance in the event of a motoring incident, helping manage the claim process, administration, control costs and get the driver back on the road as soon as possible.
Advance rental / Advance payments Any type of payment that is made ahead of its normal schedule, e.g. paying upfront before you actually receive the goods or service.
Agreement A negotiated and generally legally enforceable understanding between two or more parties.
Amortisation The reduction of an asset’s value reflect its reduced worth over time. Amortising an asset transfers all or part of its value, from the balance sheet to the profit and loss account, where it reduces taxable income. Amortisation can also refer to the reduction of a debt, by periodic repayments of the capital and interest, Also known as depreciation.
Annual Percentage Rate (APR) The interest rate devised to provide a ‘level playing field’ when comparing products. (Rate includes fees and all costs of borrowing.)
Arrangement fee The fee charged to a customer by a bank or financial institution for arranging credit facilities.
Asset finance The use of credit or leasing facilities to finance the provision of company assets.
Asset leasing An arrangement whereby one party rents assets from another party in return for regular payments for a specified period of time.
Asset lifecycle The phases of asset ownership from their acquisition and management, to their eventual sale or disposal.
Asset management solutions The delivery of a comprehensive service which enables you manage all physical assets throughout their working life cycle.
Asset management tool Dedicated software package or online resource which enables organisations to keep track of all assets throughout their life cycle.
Assets Any resource that has a commercial value with the expectation that it will provide future benefit to an organisation.
B (index)
Balloon payment The final payment on a loan in order to pay off the debt in full and which is usually larger than the preceding installment payments.
Bank liquidity A measure of the extent that an organisation can call upon a bank for a loan or overdraft.
Base rate The rate set by the Bank of England on a monthly basis and used as the basis for setting loan rates.
Benefit-in-Kind (BIK) tax The ‘perks of the job’, or non-cash payments, are taxable as a Benefit-in-Kind (BIK). So, if employees are, for example, covered by a private health plan or have a company car then they are liable to pay tax on the benefit.
Bring your own device (BYOD) schemes A phrase widely adopted to refer to employees who bring their own devices (such as smartphones, laptops and tablet computers) to the workplace for use and connectivity to the corporate network.
Broker A licensed company or individual who acts as a trusted agent or intermediary for commercial transactions or negotiations.
C (index)
Capital The money or assets owned by a company and indicates the financial strength of the organisation.
Capital allowances The percentage of the cost of the capital asset that can be offset during the accounting period in which it was purchased and which is greater than the depreciation charge on the asset during the same period.
Car allowance Money paid to an employee in lieu of a company car and generally paid on a monthly basis through PAYE.
CO2 emissions The annual vehicle excise duty (car tax) rates for cars is based on their CO2 emissions (g/km); the higher the CO2 emissions the higher the rate of tax.
Consumer Credit Act (CCA) The Consumer Credit Act regulates credit including: content and form of all credit agreements, calculating the annual percentage rate (APR), procedures relating to events of default, termination or early settlement. Before granting credit, a creditor must also assess your creditworthiness.
Contract Any document drawn up between two or more parties which is usually legally binding.
Contract hire An ‘off balance sheet’ method of funding whereby you lease an asset (usually a vehicle) for a predetermined period for regular monthly payments. The leasing company retains ownership and at the end of the leasing period the asset is returned to them.
Contract mileage The agreed annual mileage that a vehicle is estimated to cover over the term of the contract.
Contract purchase An ‘on balance sheet’ method of funding whereby you finance a vehicle over a specified period with regular monthly payments. At the end of the contract, you can purchase the car at for a predetermined amount or hand the car back with nothing further to pay except any excess mileage or damage charges, if applicable.
Corporate purchasing terms The discounted rates negotiated by organisations with their suppliers.
Corporate Social Responsibility (CSR) The growing need for organisations to demonstrate their desire to protect the environment and invest in communities.
Cost monitoring The ongoing observing of the costs of asset finance, normally covered by a dedicated asset management tool.
D (index)
Daily rental Term which covers any short term rental and the associated cost generally calculated on a daily or weekly basis.
Data erasure A software-based method of wiping out all data contained on hard drives or other digital devices such as laptops, tablets, smartphones; essential when selling on or returning IT assets at the end of a leasing period
Debt to equity ratio A measure of the extent to which a company’s capital is provided by owners or lenders. It is calculated by dividing debt by equity, in order to assess a company’s ability to repay its obligations.
Decline Refusal by a finance company to provide funding; generally due to the result of poor credit search and credit score.
Deposit Some contracts require a certain percentage of funds to be transferred before delivery of assets as an act of good faith.
Depreciation An accounting system used to allocate the cost of an asset (less residual value) over its estimated useful life. Depreciation recognises the gradual exhaustion of the asset’s value over time.
Directors guarantee In some instances a leasing company will require that the company’s directors give their personal guarantee in order to approve funding.
Disposal plan A document that clearly defines how an asset should be retired or disposed of at the end of their working life.
Disposal process Covers all activities required to dispose of assets at the end of the leasing period.
Duty of care In addition to the legal requirements covered by the relevant health & safety and employment law, employers must also abide by common law duty of care; which requires that they should take all reasonable steps to ensure the health, safety and wellbeing of their employees.
E (index)
Early termination When a lessee’s circumstances change unexpectedly and they wish to end the contract before the end of the agreed lease period.
Early Termination Insurance (ETI) An insurance policy to cover any payment owing in the event of an early termination.
Economic life The length of time that an asset is expected to remain in service before it is estimated that it would be cheaper to replace the equipment rather than continuing to maintain it.
Effective rental The recognised average rental rate that will be charged over the whole term of the lease.
Electronically generated asset profiles The ability of an asset management tool to produce individual profiles of every asset on demand.
Employee benefits Any benefits that are given in addition to wages or salary such as a company car allowance or an employee pension scheme.
End of contract The date as defined by the primary lease period, whereby you must either extend the lease for a secondary period or either return or purchase the assets.
Equity The value of any asset minus any outstanding finance.
Excess mileage At the beginning of a vehicle lease the annual mileage of a vehicle is estimated, should a vehicle exceed this figure this is referred to as excess mileage.
Excess mileage charge The charge levied per mile when the estimated contract mileage has been exceeded.
Expandable solutions An asset management solution that has built-in flexibility in order to enable an organisation to change their requirements when necessary.
Extension charges The financial penalty incurred by a company should it fail to return assets before the agreed end of contract date.
F (index)
Fair market value The price that an asset would fetch in the marketplace, presuming that prospective buyers and sellers are knowledgeable about the asset and are given a reasonable time period for the transaction to be completed.
Finance lease The funding method used by a business for acquisition of equipment with payments structured over time. Under this arrangement the lessor receives lease payments to cover ownership costs, while the lessor is responsible for maintenance, taxes, and insurance. Read our guide to the difference between finance lease and operating lease.
Full payout lease See finance lease.
Full service lease As well as the financing of the assets, the lease contract includes associated services, e.g. maintenance and in-life services.
G (index)
GAP insurance GAP insurance (also known as Guaranteed Asset Protection) is an insurance product which protects the lessee in the event of a vehicle being written off or stolen. The insurance payment is designed to cover any shortfall there may be between the leasing company and the vehicle insurance company when settling any outstanding finance.
Grey fleet Drivers who are perhaps not eligible for a company car and who use their own cars for business journeys.
Guaranteed minimum future value (GMFV) The figure determined at the start of the lease which indicates the minimum value that an asset will be worth at the end of the primary lease; especially important if you intend to purchase the asset as opposed to returning it.
H (index)
Hire purchase A way of buying an asset in instalments, hire purchase usually consists of an initial deposit, a series of monthly payments over an agreed period at the of which you own the asset outright.
Hirer In the same way that a lessee is the party that takes out a lease, a hirer is the party that takes out a hire contract or similar.
HMRC HM Customs & Excise – the UK government department responsible for collection and administration of taxes.
I (index)
Information Technology Asset Management (ITAM) The process of gathering and analysing the inventory, contractual and financial data in order to manage IT assets throughout their designated lifecycle.
Initial rental fee Often referred to as a deposit except that it is non-refundable and counts as the first payment toward a leased asset. Often three times the agreed monthly payment.
IT assets Any physical asset which contributes to the smooth operating of the IT department.
IT estates The term used to describe the size and complexity of a company’s IT assets, especially when an organisation has multiple sites.
L (index)
Lease A legally-binding contract where the owner (or lessor) of a specific asset grants a second party (the lessee) with the right to exclusive possession for a specified period of time in return for regular monthly payments.
Lease expiration notice The actual communication from the lessor of the date that the lease is due to expire.
Lease expiration notification The requirement for the lessor to notify the lessee that the lease period is due to expire.
Lease extensions The process whereby a lease can be extended beyond the original agreed leasing period.
Lease status Describes the position and current status of the lease and the individual assets covered.
Leased assets Any physical asset which is supplied under the terms of a lease agreement.
Leasing period/term The agreed period of time that a lease covers – usually expressed in months rather than years i.e. 12, 24, 36, 48 months etc.
Legacy system Refers to outdated computer systems, programming languages and software applications that are still being used instead of upgrading to newer versions.
Lessee The company or individual who has signed the lease contract in return for the agreed assets.
Lessor The organisation or financial institution which leases the assets.
Leverage ratio A measure of how much of a company’s assets are financed by debt.
Life Cycle Asset Management (LCAM) IT management method of capital improvement that is achieved by identifying all assets used in the current environment, then analysing their life cycle efficiency. This enables an organisation to purchase new equipment when the life cycle of the older equipment has ended.
Lifecycle cost The total cost of ownership covering the whole life of an asset including; planning, design, operation, maintenance, finance and disposal costs.
Lines of credit Any credit source that is extended to companies or individuals by banks, leasing companies and other financial institutions.
M (index)
Maintenance Any actions carried out on an asset in order to ensure it is able to deliver the expected level of service until it is scheduled to be replaced. Usually an integral part of any vehicle lease.
Master lease agreement An umbrella document that enables a company acquire multiple assets without having to agree a new lease each time.
Mileage allowance The maximum number of miles a leased vehicle can be driven every year of the lease before incurring penalties. Set at the start of the contract.
Minimum term Lease A type of finance lease which runs for a minimum terms and will be continued after the minimum period (e.g. 24/36/48 months) has elapsed at the same monthly payment, unless notice is served to the lender to end the contract.
Money laundering Any activity which attempts to hide the proceeds of crime by running it through a series of financial transactions in order to hide the original source.
Monthly payment/rental The agreed monthly cost of an asset as set out in the lease or purchase agreement.
Mortgage A loan aimed at helping people to invest in property which is used as security (collateral) for the loan until it has been fully repaid.
Multiple estates In situations where companies operate IT equipment situated in different locations, this is referred to as multiple estates, but can still be served by a single leasing contract
N (index)
National Insurance Contributions (NICs) Payments made by both employees and employers in the UK, to fund sickness and unemployment benefits and the state pension.
Non-cash benefits Any ‘perk of the job’ which isn’t paid in cash, such as a company car or private health plan, but which is taxable. (see Benefit-in-Kind (BIK) tax.)
O (index)
Off balance sheet financing Any type of financing that doesn’t appear as a liability on the balance sheet and often used in order to keep the debt/equity ratio low. Leasing is a common form of off-balance sheet financing as the company rents as opposed to buying the asset; and as a result need only record the monthly payments and not the whole cost of the asset. New accounting regulations are being drafted which will see the treatment of leasing change.
On the road price The vehicle manufacturer’s retail price plus delivery charge, first year’s road tax and first registration fee, (less any manufacturer or fleet operator discounts).
On-demand reporting The ability of an asset management tool to supply companies with detailed reports on the status of assets at any time.
Online portal A dedicated website that enables users to access a range of customisable & personal information and is usually password protected.
Operating lease A short term and cancellable lease in which the contract period is shorter than the estimated life of the asset and the asset is returned to the lessor at the end of the contract.
Ownership risk Ownership of assets implies that a company is fully responsible for all aspects of an asset, as opposed to leasing whereby risk resides with the leasing company.
P (index)
P11D value P11D is the name of a form filed by employers and sent to the tax office where their Pay As You Earn scheme is registered. The P11D value of a car is used to calculate the amount of company car tax to be paid and is comprised of the list price, including VAT, plus any delivery charges, but does not include the car’s first registration fee or its annual road tax.
Part return of schedules The ability to return some assets while retaining others at the end of the leasing period.
PAYE (Pay As You Earn) The most common form of employee taxation, whereby a percentage is deducted from the monthly salary.
Payment profile Determines the monthly rental cost and the frequency of payments made to the leasing company.
PCH (personal contract hire) A method of funding whereby an individual hires a vehicle for a specified term and makes regular monthly payments. The leasing company retains ownership of the vehicle and at the end of the contract period, the vehicle is returned to the leasing company which is responsible for any risks in depreciation.
PCP (personal contract purchase) Similar to personal contract hire except that at the end of the agreed period, the individual has the ability to purchase the car for a predetermined amount.
PDI (pre-delivery inspection) A comprehensive inspection which is carried out before the delivery of any new vehicle to ensure that it meets the standards required by the manufacturer.
Peppercorn rental Type of rental most commonly used at the end of a primary finance lease and consists of a small payment, to allow continued use of the asset. Also see secondary rental.
Personal leasing A method of funding whereby an individual, as opposed to a business, leases a vehicle for an agreed period and makes regular monthly payments.
Pooling A pool of assets is typically a group of small and illiquid assets that are unable to be sold individually, by pooling the assets it allows them to be sold to general investors.May also relate to vehicle leasing where a fleet of vehicles are assessed collectively to average out mileage to allow under mileage vehicles to off-set those which have exceeded the mileage allowance.
Primary lease term/period The primary lease term is the initially agreed period of time that a lease is agreed upon. At the end of this period assets must be returned unless an extension or secondary lease term is agreed upon.
Purchase option The option to purchase an asset at the end of the leasing period for a predetermined price.
R (index)
Recycling assets At the end of the lease many assets can be resold, but in the event that they have reached the end of their working life they should be recycled in compliance with the Waste Electrical and Electronic Equipment (WEEE) directive (see WEEE directive).
Renewal The replacement of your current contract with a new contract.
Replacement vehicle Where, in the event of a breakdown or accident, a substitute vehicle is provided.
Residual value The estimated amount that an asset would be worth at the end of the leasing period and in the condition expected at the end of its useful life, minus the estimated costs of disposal.
Residual value based lease A lease contract based on forecasting a residual value for an asset at the end of the leasing period, resulting lower monthly payments as the different between acquisition price and the residual value is financed rather than the full value of the asset.
Returns procedures When it comes time to return the leased assets, the returns procedure can vary. Some leasing companies offer a logistics service which includes packing, collection and transportation, while others require the lessee to undertake the whole process.
RFL (Road Fund Licence) The RFL (or road tax) is annual vehicle excise duty required by all vehicles registered in the UK, in order to pay for the upkeep of the nation’s roads.
Roadside assistance /breakdown recovery A mobile repair and collect service for vehicles will not start or have broken down either at home or out on the road. Generally, most new vehicles have breakdown cover as part of the warranty package.
S (index)
Salary sacrifice Salary sacrifice is a contractual arrangement whereby an employee surrenders the right to receive part of their cash remuneration in return for some type of non-cash benefit, such as a company car.
Sale and leaseback The process whereby a company owned asset such as a vehicle is purchased by the leasing company, releasing capital. The asset is then leased from the leasing company in return for regular payments, improving cash flow.
Secondary lease term/period At the end of the primary lease term, it is often possible to extend the lease on the existing assets with a secondary lease term; often a 12 month extension on the primary lease.
Secondary rental The monthly fee agreed to cover a secondary rental period; usually less than the primary monthly rental fee.
SMR (Service, Maintenance & Repair) Usually an integral component of vehicle leasing, SMR covers the regular servicing, maintenance and repair of the leased asset to help ensure it is able to deliver the expected level of service until it is scheduled to be replaced.
T (index)
Term The phrase used to describe the length of a contract.
Terminal pause The period of time between the last payment and the end of a lease. before an asset is either returned or acquired.
Termination The ending of a contract, either at the planned contract end date. If in advance of the scheduled contract end date, this is known as Early Termination.
The Finance & Leasing Association (FLA) The UK’s leading trade association for the consumer credit, motor finance and asset finance sectors, and the largest organisation of its type in Europe.
Total loss An insurance term used when the cost of repairing an asset is more than its current value.
Transparency The ability of an organisation to see every aspect of a finance contract throughout its life cycle, to ensure there are no unpleasant surprises.
U (index)
Underwriting The process used by funders to run a series of checks in order to assess the eligibility of a customer to receive funding.
V (index)
V5 The registration document issued by the DVLA which lists the name and address of a vehicle’s current owner as well as the last two registered keepers. In addition it also lists the vehicle’s colour, make, model, engine number, and vehicle identification number.
VAT qualifying cars Any vehicle on which VAT is paid through lease, purchase or contract. An organisation is able to reclaim 100% VAT if it is used solely for business or 50% for personal use.
VE103 The certificate giving permission to travel abroad and is required when any rental or leased vehicle is taken out of the country.
Vehicle on Hire Certificate See VE103
Vehicle tax rates Car vehicle tax rates are based on engine size, fuel type and CO2 emissions, (depending on when the vehicle was registered).
W (index)
WEEE directive The European Waste from Electrical and Electronic Equipment Directive which was introduced to reduce the amount of WEEE going to landfill. It requires that all manufacturers and producers to take responsibility for what happens to their products at the end of their working lives.
Whole life costs The total cost accounting covering depreciation, servicing and other related costs incurred when operating any asset for a set period of time.
Written down allowances A capital allowance for any vehicle which is used to carry out a trade. The lease must include a clause making it clear that the lessor or owner will claim this allowance.