The benefits of an equipment manufacturer starting a leasing division
Prior to coming to JDR Solutions, Kimberly Yeo worked in the leasing division of two equipment manufacturers. She had the opportunity to be on the ground floor of the second one where they started and grew the business to be extremely successful. This effort optimized revenue streams and ultimately drove significant profitability that made a substantial contribution to the company’s bottom line.
If you are an equipment manufacturer looking for ways to diversify your revenue stream, one strategy is offering equipment leasing options. This can enhance your customer relationships and improve cash flow. Here’s an outline of the benefits of starting a leasing division and what’s involved in getting it started.
- Increased Sales and Revenue
Leasing can open up new sales channels and attract a broader customer base. Many businesses, especially small and medium-sized companies, find it challenging to make significant capital expenditures for expensive equipment. By offering leasing options, manufacturers can provide flexible payment plans, making their products more accessible to these customers. This increases the likelihood of closing deals with customers who may not have the immediate funds to purchase outright, leading to more frequent and consistent sales.
- Steady Cash Flow
For manufacturers, selling equipment results in large one-time transactions. This can be profitable, but it can also lead to cash flow fluctuations. Leasing, on the other hand, creates a steady, predictable income stream through monthly or quarterly payments. It is especially beneficial for industries such as farming, where manufacturers experience peak and off-peak seasons based on planting and harvest times.
- Stronger Customer Relationships
Offering leasing options strengthens the relationship with their customers by providing flexibility. By offering the customer a leasing option, you can also offer maintenance, service, and upgrades as part of the deal. This creates a long-term connection with the customer, which increases the potential for repeat business, renewals, and upgrades. It also provides opportunities to upsell new products and services during the lease term of the lease.
- Competitive Advantage
In many industries, leasing is becoming the norm, particularly for businesses that require high-cost equipment. If competitors offer leasing options and you don’t, you risk losing business to them. Having a leasing division gives manufacturers a competitive edge, especially if they offer more favorable terms, such as lower interest rates or better service packages.
- Asset Control
Leasing companies typically retain ownership of the equipment, which provides manufacturers with control over their assets. In the event of default or the end of a lease, they can recover and refurbish equipment for future leasing or resale.
What’s Involved in Starting a Leasing Division
- Understand the Legal and Regulatory Requirements
Before launching a leasing division, equipment manufacturers must familiarize themselves with the legal and regulatory requirements of leasing. This includes understanding leasing agreements, tax laws, and finance regulations. Consulting with legal and financial experts will be crucial in ensuring compliance and avoiding legal implications.
- Build a Financing Model
Establishing a leasing division requires significant upfront capital and a sustainable financing model. Manufacturers may either fund the leasing division internally or partner with financial institutions that specialize in leasing. They need to determine the types of leases they’ll offer (e.g., operating leases, finance leases) and how to structure the terms to be competitive while maintaining profitability.
- Develop Lease Terms and Conditions
A key part of getting a leasing division started is determining the lease terms, such as the lease duration, payment schedule, interest rates, and maintenance agreements. Manufacturers should also consider the residual value of the equipment (the equipment’s value at the end of the lease), and whether they want to offer buyout options for customers. It’s important to craft terms that balance customer affordability with the manufacturer’s revenue goals.
- Establish an Operational Framework
Managing a leasing division requires a dedicated team to handle various aspects of the leasing process, including contract management, customer service, equipment servicing, and financial tracking. Manufacturers will need to invest in a robust system for tracking leases, payments, and asset management. Software solutions tailored to lease management and customer relationship management (CRM) are essential to streamline these operations and ensure efficiency.
- Create Marketing and Sales Strategies
To promote the new leasing options, manufacturers will need a marketing and sales strategy that targets potential lessees. This includes crafting compelling messaging about the flexibility, affordability, and added value of leasing versus purchasing. Marketing campaigns could include online advertising, direct outreach to businesses, attending trade shows, or hosting webinars. Sales teams will also need to be trained in how to sell leasing as a solution and handle customer inquiries effectively.
- Assess Risks and Develop Risk Management Strategies
Leasing, while profitable, involves risk, particularly around payment defaults, equipment damage, and market fluctuations. To mitigate these risks, manufacturers must develop risk management strategies, which may include credit assessments, leasing insurance, service agreements, and penalty clauses for early terminations or missed payments. Partnering with a third-party insurance provider or financial services firm can help protect the leasing business from potential defaults and asset losses.
- Ensure Customer Support and Service Infrastructure
One of the major appeals of leasing is the level of service and support that accompanies the agreement. Manufacturers should offer comprehensive maintenance, repair services, and equipment upgrades as part of the leasing package. Having a dedicated customer support team to handle service requests, troubleshoot issues, and providing ongoing maintenance will be critical to the success of the leasing division.
Partnering with JDR Solutions for a Seamless Leasing Program
Setting up an in-house leasing division can be complex, but JDR Solutions can simplify the process. As a leading business process outsourcing company, we help manufacturers identify and implement the right leasing software platform tailored to their anticipated contract structures.
From contract booking to asset disposition, we handle the full lifecycle of lease management, allowing manufacturers to focus on their core business. Our services include:
• Hosting and software support for leasing platforms.
• Portfolio management, including contract booking, payment application, and contract adjustments.
• Customer service and collections, ensuring a seamless experience for lessees and efficient receivables management.
• Professional services for implementations, software upgrades, custom extracts, and reporting.
• Web portal development that integrates with your chosen leasing platform.
By partnering with JDR Solutions, manufacturers can launch a leasing division efficiently, reduce operational burdens, and maximize profitability while delivering superior customer experience.
Conclusion
Starting a leasing division can be a game-changer for equipment manufacturers. It offers the potential for increased revenue, stronger customer relationships, and greater market reach. While establishing a leasing division requires careful planning, financing, and operational set-up, the long-term benefits make it a worthwhile investment for manufacturers looking to remain competitive in today’s market. By providing flexibility, reducing upfront costs for customers, and offering ongoing service and support, manufacturers can create a sustainable revenue stream while simultaneously enhancing customer loyalty and expanding their business footprint.
Learn more about how JDR Solutions supports equipment manufacturers with captive leasing solutions here.