The Dark Side Of Equipment Leasing & Financing

If you’re thinking about, or are in the process of leasing or financing equipment for your office, a client’s painful experience in the past has me inclined towards advising you to give it a second thought, or at least know to ask the right questions. Taking this pause to rethink your decision might cost a little valuable time, but it will definitely save you a significant amount of money, and a whole lot of heartache in the long run.

It helps to remember that companies selling equipment will convince their clients with attractive leasing and financing deals. The reason is, once they lease you the equipment, they will receive the payments from the leasing company in the same month, without having to chase clients, like yourself, for monthly payments themselves. It’s a great deal for the selling company!

My story starts 6 months ago in an office of a client of mine in Richmond Hill, ON.
My client wanted to upgrade his VOIP system and had to choose the right company. After a long process, we found a suitable provider and began closing the deal.

The sales agent gave my client 2 options:
Pay $49,870 cash for the entire system
Pay $630 for 7 years through a financing deal (Lease to Own).

My client jumped on the $630 per month deal as it will not significantly impact his business’ cash flow. I advised my client that the terms were not the best he could get, and that I could negotiate a few payments, or a much better deal with the sales agent.  But before I could make a really effective case against the lease to own option their business was about to jump into, one of the partners declared that this was their final decision, and no more discussion was required on the matter. Based on my past experiences, I knew how the lease and financing deal could really affect the business, including the risks and monetary impact it had. I tried for the last time to share my experience and thoughts as a friend of the business, but I was ultimately vetoed and asked to drop the matter altogether.

Few weeks later, the system was implemented. There were initial problems, but all things considered for a new system, it was still on track for the first phase.

After a few months passed, I was sitting with the client in a meeting to review their sales team’s performance in the third quarter. Suddenly, the bookkeeper comes into the room and asks my client why their insurance went up by 20%. She advised my client that she talked to the insurance company, and they said that there is a new line item to insure in my client’s account – the recently installed VOIP system. That was only the first issue discovered related to the lease to own deal. My client need to carry a 20% increase in their insurance for the next 7 years. Just great!

A few weeks after this meeting, my client told me that they are going to file a lawsuit against the company that sold them the VOIP system as there are multiple issues with it, and the company can’t resolve them. For every time their phone system goes down, they lose revenue by the minute, and their team’s productivity by the second.

At the first settlement conference, the judge dismissed my client’s claim, with the basis of the equipment being bought from the leasing company, and not the manufacturer, or reseller themselves. Remember, because of the leasing option, payments are technically made to the leasing company that relieves the reseller the hassle of going after monthly payments themselves.

The judge said that my client will be able to sue but it’s a more complicated and expensive process because the leasing company needs to be involved as well, and they have a strong legal team ready to go to court. In addition, the VOIP reseller company filed a counter lawsuit against my client for breach of contract, since he sought to end the support agreement 6 years earlier than legally obliged. On the line is an outright $50,000 bill.

Because of the hassle and loss of business, both sides agreed to drop the lawsuits, and my client got stuck with a useless VOIP system.

In summary, here’s what my client lost:
$2,992.20 payments on interest
$49,870.00 system that he is not using anymore
Lots of beers to forget this deal 🙂
Increased insurance payments by 20% for the next 7 years
My client was not able to pay the deal in one payment without a huge penalty, so he continues to pay for it until today.

Before you subscribe to lease to own or financing deals, check the above items and get the terms in writing. You need to know in advance and be prepared for repercussions, such as: impact on the insurance, financing interest, ability to cover the system purchased in one payment with no penalty, and the party responsible for addressing equipment failure – all in writing.

If you a client of mine or someone who read my blogs, I hope I was able to give you some valuable points to consider, and keep you safe from the unwarranted trouble of initially attractive, but detrimental business deals and expenses.

Learn how to business the smart way, and avoid losing valuable resources and profit to initially attractive, but unsavoury business deals. We’re happy to help you protect your business and investment today when you get in touch with us.

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