So What Is Contract Hire and What Are The Benefits?
Under a Contract Hire agreement the lease company will always retain ownership of the vehicle(s), the customer is simply the vehicle ‘Hirer’
Benefits of Contract Hire
Fixed cost motoring – with Contract Hire the payments are fixed from the outset of the Contract and are not subject to interest rate fluctuations, this enables the customer to budget effectively, if a maintenance package is taken this also ensures you are protected by any costly and unexpected servicing bills.
Cash Flow – Contract hire improves your cash flow thorough low initial payments
Vehicle Maintenance – If you want a completely hassle free way to run your company vehicle(s) for an additional monthly cost you can opt to bolt on a Full Maintenance package to your Contract Hire agreement, this ensures the vehicle will benefit from all routine servicing and replacement tyres, exhaust and batteries.
VAT reclaimable – VAT is reclaimed by the funder on the purchase price of the vehicle, the benefits of this are passed onto the customer.
Once the vehicle has been delivered and providing your company is VAT registered you can start to reclaim 50% of the VAT on the finance element of the monthly payments and should you of opted for a maintenance package you will be eligible to reclaim 100% of the VAT on the Maintenance element.
Off Balance Sheet Funding – Contract hire is what we call an Operating Lease this basically means the vehicle doesn’t depreciate on the company’s balance sheet. Monthly payments are viewed as an expense in the P&L account
Fleet Management – No matter how small or large your fleet of vehicles is, with Contract Hire we will manage your vehicles, ensuring the mileage is tracked to advise you if any of your vehicles are going over the permitted mileage set out at the beginning of the Contract Hire agreement, we will also call you three to four months before the end of the contract ensuring a smooth change over into a replacement vehicle and generally manage the administration of your Contract Hired fleet.
Road Tax – With Contract Hire you will receive Road tax for the duration of the vehicle’s contract, this will automatically be sent out to you when your old disc expires.
No Depreciation Risk – As the Contract Hire company is the registered owner of the vehicle they take all the residual value risk, if the used car market crashes it’s not your problem! You just simply hand the vehicle back at the end of the term.
Release Capital – Contract Hire enables you to set up funding away from your normal sources leaving important cash lines available for other areas of your business
Corporation Tax – With Business Contract Hire 100% of the monthly payments can be offset against corporation tax, for Vehicles over 12,000 GBP a proportion is disallowed, the following calculation must be followed to ascertain the amount and is commonly known as the ‘Half the Difference Rule’
All makes & models – You can choose absolutely any vehicle make or model to go on a Contract Hire agreement, you can also choose to fund your light commercial vehicle this way.
Shaun Parker is an expert on contract hire. To find out more see http://www.ambervehiclesolutions.co.uk/
Expand Your Business with Vendor Equipment Leasing
Many equipment vendors don’t want to bother with financing. They figure that the customers who can afford equipment will buy and that those that can’t won’t.
It is correct that customers on tight budgets who can’t afford the equipment outright aren’t going to buy. That doesn’t mean they aren’t potential business opportunities. Many of these customers are leasing equipment instead of buying. If you don’t have a leasing program, you could be losing quite a bit of your business to your competitors that do offer leasing programs.
Equipment Leasing vs. Buying
According to recent surveys, only 22% of businesses buy their equipment outright while the rest finance the purchase. Less than 50% of that equipment financing is done through loans. Most equipment is acquired through leasing programs.
Particularly for the small business, equipment leasing offers substantial benefits over purchase such as tax benefits and easy upgrades. It requires less capital up front so is often the only option for cash-strapped and credit-poor companies.
For the vendor, equipment leasing means a much wider customer base. You can offer your products to companies you never considered before. Additionally, a lease can often mean more income over the long run than selling a piece of equipment outright. Leasing is an operating expense rather than a capital expense, so can be approved at a lower level of the organization. This means quicker turnaround on the deal.
Leasing Brokers do the Dirty Work
If you are like the typical vendor, equipment leasing isn’t something you have experience with. You know how to design and manufacture the product but you probably don’t have anyone on staff that is well versed in the details of financing. This means hiring a new person and maybe even creating a new department, along with all the bureaucratic headaches that come along with such a restructuring.
Instead of doing the equipment leasing yourself, go through a broker. Brokers handle all the picky details of matching you to the right customer, checking customer credit, finding funding sources, and setting up the lease agreements. This lets you focus on what you do best without diluting your efforts.
Leasing Income Means Regular Cash Flow
Another advantage of equipment leasing is that rather than occasional and unpredictable sales income, you now have a regular, monthly income stream. This makes it easier to plan your future finances and cover regular expenses.
Leasing lets customers upgrade equipment more frequently, and that is good for your business as well. Rather than waiting for the old equipment to die, you can sign customers to new leases on updated, and usually more expensive, equipment and increase your cash flow.
Implementing a vendor equipment leasing program brings your company an array of potential new customers and predictable income. Doing it through a broker means the program will have very little impact on your actual day-to-day operation except for the increased sales opportunities. Leasing is an increasingly popular option and there is no reason for any equipment vendor not to offer a financing program to their customers.
Author is a freelance copywriter. For more information on Equipment Leasing, visit http://www.ResourceCapitalPros.com
Car Leasing 101: What You Need To Know
Who can resist the ads? Lease the car of your dreams for a mere $199.00 and very little down. It doesn’t take much to see why leasing has become a popular option for those who either can’t afford to buy a new car, or can’t afford to upgrade to the model they really want.
On the surface, leasing a car may seem too good to be true – and oftentimes it is. Sure, leasing often gets you in a better car, but is it a better deal? For most people, the answer is no. Unless you need a short-term arrangement due to work or school demands, leasing often costs much more in the long run than buying.
What are some of the disadvantages of leasing? Check these out and see:
-If you continue to rollover car leases, payments never end, because you never “own” the vehicle.
-Limited Mileage. Leases offer a limited amount of miles per year that the car can be drive. Go over those limits, and pay extra when the lease ends
-The vehicle must be kept in tip-top shape. Scheduled maintenance must be done on time. You’ll also pay for any scratches, dents, spots, stains, and general wearing on both the interior and exterior of the vehicle at the end of the least
-There’s no backing out. Once a lease agreement is signed, you’re in it until the end. If something happens, and you find yourself in need of getting out of a lease before it expires, plan on paying hefty terminations fees and penalties immediately
-Depreciation Hurts. All cars begin to lose value as soon as they are driven off the lot, but leased vehicles seem to be hit harder due to the fact that payments are so low, hindering any chance of having any equity in the vehicle. Without the ability to trade it in at the end of the lease, that may not seem like a bad thing, unless you’re in an accident. If the car or truck being leased happens to be totaled in an accident, the insurance company is only liable for the estimated value, not the total lease payoff, leaving you with a potential bill. Of course you can purchase separate leasing insurance, for a price.
-When it ends, you have no car. Most leases today range from 2-5 years. The average is 36 months. That means, in just three short years, you’ll be forced to acquire another new vehicle. That may mean paying another down payment, and setting up yet another payment schedule. At least when you buy a car, you have some time to find a replacement.
-You’re stuck with what they have. Customizing a vehicle is generally out of the questions when leasing. You are forced to take whatever color and options they have, which may not be necessarily what you want.
Leasing can be a viable option for some consumers; the trick is to understand both its pros and cons before rushing to the showroom to make a deal.
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Contract Hire Or Contract Purchase – What Are Your Choices?
In today’s financial climate more and more businesses and private individuals are moving away from buying their vehicles with cash or a bank loan and looking at better alternatives, which are both more tax efficient and cost effective.
Contract Hire
One of the most popular schemes is contract hire, which is now available to private individuals via PCH(personal contract hire) as well as the long established BCH(business contract hire) for business users. In a nut shell these type of contracts allow you to ‘hire’ the vehicle of your choice for a set period usually between 12 & 60 months, with a low initial rental (usually equivalent of 3 x the actual monthly rental)and at the end of the contract it is simply returned to the funder, with absolutely no residual burden for the user.
Contract hire is much more affordable from a monthly payment point of view as you are not paying for the full price of the car over your agreed rental period, you simply pay for a percentage of the price, basically you pay the (initial cost of vehicle) minus (the funders estimated future residual value + Interest), therefore if your chosen vehicle has a strong residual then your monthly payments would be much cheaper than those of a car with a poor residual.
In Layman’s terms you could have an Audi or BMW for the same monthly rental as say a Mondeo or Passat. With your contract hire contract you can also choose to add full maintenance which means the cost of all standard servicing, replacement tyres, exhausts and batteries (due to fair wear & tear) are included, meaning that you have a ‘no-worries’ contract where you can budget confidently for a vehicle for the full contract term in the knowledge that you wont be getting any nasty surprise servicing bills.
So to sum up the main benefits of contract hire to both business & personal clients are as follows:
* Vehicle is shown off balance sheet(protects gearing ratios) (Business Users)
* Accurate monthly budgeting
* Improved Cash flow(Low initial outlay)
* Fixed monthly rentals unaffected by interest rate rises.
* Elimates all risk on residual values and maintenance costs(Full maintenance)
* 50% of VAT is recoverable for VAT registered businesses on monthly rentals & 100% on the service element if a full maintenance contract.
* Road fund licence included for entire contract.
* Percentage of the rentals allowable against tax(Business Users).
Contract Purchase
This is an alternative type of contract that gives you similar benefits to contract hire but with the option to purchase your vehicle at the end of the contract, this is called Contract Purchase and as before can be done through your business or personally for private individuals.
As with contract hire there is a low cost of entry, usually a minimum deposit (3 x your monthly payment) and typically you can take a contract over a period from 12 to 60 months. At the point of negotiation of your contract the funder informs you of what the GFV (guaranteed future value) of your vehicle will be, and that is a fixed value it cannot be changed by the funder at any point once the contract is agreed.You can also as per contract hire choose to take your vehicle with full maintenance included for extra piece of mind and tighter budgetary control.
But where it differs to contract hire is that instead of the vehicle simply being collected from you by the funder at the end of contract, with contract purchase you have 3 choices:
1. You can choose to simply hand the vehicle back to the funder without making the final payment(the GFV) and would be 100% free of any further penalties(unless you had gone over agreed contract mileage or damaged your vehicle)
2. You may decide you want to keep the vehicle and you can choose to refinance over an extended period.
3. Or finally you simply pay the final payment(GFV) and keep the vehicle so that you could sell on privately or part exchange for another vehicle.
The other added benefit from a business perspective is that the vehicle is seen as an asset on your accounts and therefore you are able to write down a proportion of its value against your profits.
Shaun Parker has been at the forefront of the vehicle leasing industry for several years. For more information visit http://www.ambervehiclesolutions.co.uk