You have probably heard the horror stories of businesses being stuck in contracts with vendors due to fine print or hidden language. In this piece I will help break down the essence of a copier contract and the additional agreements or requirements that may accompany them.
Lease? Buy? Rent?
First off, organizations must decide whether they want to purchase a device(s) outright or whether they would rather commit to other payment options like leasing, financing or renting. The most common commitment in our customer base is leasing, though purchasing is not uncommon. Renting in our industry is usually reserved for refurbished equipment and for new companies that may not have established credit.
A lease for office equipment is a contract between a customer (leasee), a vendor (copier company) and the leasing company. Sometimes copier companies may have in-house leasing which would then make it a contract between just them and the leasee. A lease is usually in terms of either 36, 48, or 60 months. There is also an option with most lenders to provide a $1 buyout rate to companies. In this case, the monthly payment would be higher than a traditional lease but at the end of the term, the leasee could retain ownership of the device for $1.
Benefits of Leasing
- In our modern world, technology changes extremely fast. Staying adaptable and ensuring your office equipment can keep pace with your work environment is important. New technology comes out often and by leasing, you can upgrade to a new model and keep your monthly payment very similar in most cases before your contract end date.
- Budgeting. Knowing what you are going to spend each month is one thing but also not having to front thousands of dollars and rather spreading that out over the duration of a lease, frees up dollars for more strategic business expenditures.
- Tax advantage. Leasing is considered a pre-tax expense, therefore the entire payment you pay each month can be deducted. This differs from purchasing equipment where 40 percent of the purchase price is tax deductible through depreciation for the first year and 25 percent in the years following. Tax laws are constantly changing therefore we recommend consulting your CPAs to ensure you are making the most strategic options for your organization.
With traditional leases, a monthly payment is required of the leasee every month and at the end of the term the options are as follows:
- Return the equipment in working order and cover any shipping costs incurred.
- Buyout the equipment from the leasing company at a cost quoted by them.
- Keep the equipment and let the lease (knowingly or unknowingly) go into “Evergreen.” This essentially means that your contract extends for an amount of time specified under the terms and conditions of the contract. In our industry we most commonly see extensions of 30, 60, 90 days though some companies push it to an annual extension.
In order to end a lease when the specified duration is complete, the leasee must notify the leasing company of their intent to end the lease within the window provided in the terms and conditions. These restrictions may be 30 days prior to the end date or span past 90 days prior. In some circumstances there may even be a window in how long out you can provide notice, for example, “the written notice must be provided no more than 180 days prior to the end date and no less than 60 days prior to the end date.”
For example, XYZ company signs a 60-month lease on February 14th, 2020 and in February 2024 decide they want to go with a different model. The terms and conditions of their contract state that they must give written notice within 90 days of the end date and no more than 180 days out. So, the earliest XYZ could send their “letter of intent” to the leasing company would be August 18, 2024 (180 days prior to end date) and the latest they could send it in would be November 16, 2024 (90 days prior to end date).
Leaving a Lease Early?
Say you are in a bad situation and are fed up with your equipment or vendor and you just want to part ways and start fresh. There are options. They will be more costly than sticking to the agreement, but sometimes increased cost can bring invaluable morale and peace of mind.
At any time during your lease agreement, you can request a buyout quote from the leasing company. Most leasing companies will provide this information to the copier vendor first and provide them with a few days to notify you with the information before they release it to you directly. There would be a couple quotes given, one would be to “purchase” and the other to “return.” One thing to keep in mind is that if you choose the return option, you will be responsible for any shipping and handling charges.
Stream of Payments
Another thing to keep in mind is that if you are switching vendors, the incoming vendor you are working with will most likely be active in this process and may give you additional options such as a “stream of payments.” This plan is where a company cuts you a check for the remaining balance you owe in payments through the end date of the lease and then they have you continue making the payments and store the equipment until it is time to ship it back. If you choose this option, it is imperative that you heed the letter of intent requirements so that you do not get stuck paying for additional payments on equipment you don’t use. In addition, make sure that you ask your new vendor to address whether they are including shipping and taxes in their check to you.
Anytime you enter into a contract, there are stipulations you agree to. Leasing office equipment is no different. Though, understanding how these contracts are written and the common hinderances organizations encounter when trying to change course can be invaluable during your negotiations with vendors and for your record keeping strategies.
At Copiers Plus we try to be transparent and open about our contracts and would love to help you further decipher your own. If you would like help reviewing your current contract or have any additional questions, please reach out to us at 800-648-7081, [email protected]
or via our website
To schedule your complimentary assessment, contact us at 800-648-7081 or visit our website.
Drew Smith currently serves as Director of Communications for Copiers Plus. The company specializes in modernizing office equipment and increasing efficiencies in workplace communications throughout the state of North Carolina. To learn more about how Copiers Plus is providing their customers with innovative document solutions and enhanced printing transparency, visit www.copiers-plus.com. Drew would love to hear from you at [email protected].