If you have been involved with a lease agreement involving a copier, you have probably heard the term buyout. Or maybe you are a sports fan and have heard of teams buying out contracts of players. Regardless of your familiarity with the term, understanding how a buyout works and the options available to you when they are in play is important to ensuring you have a copier contract that avoids unexpected charges and penalties.
What is a Buyout
A buyout, put simply, is the dollar amount a lessee owes to settle an obligation to the lessor regarding an asset that was leased. Many times a lease is administered through a third party leasing company and the service is performed by a vendor. To form a lease agreement a vendor will request an approval for a company at a certain dollar amount and term, then the leasing company will either provide an approved lease rate, request additional information such as a personal guarantee, or will decline the financing outright.
A lease agreement has a start and end date. If you exit the lease before the end date a buyout becomes required. The buyout must be requested from the leasing company holding the lease and will usually be sent to the vendor. The vendor then has a specified number of days to notify the lessee of the details of the buyout before the information is passed along from the lessor.
The most common types of buyouts available from leasing companies are: vendor upgrade to keep, vendor upgrade to return, customer buyout, and vendor buyout.
Vendor Upgrade to Keep
With an upgrade to keep, the leasing company is passing along to the vendor an incentivized figure that is contingent upon the financing of the next lease that the customer/lessee enters into being held by them. Additionally, this buyout allows the vendor to retain ownership of the equipment and removes the requirement of shipping it back to the leasing company.
Vendor Upgrade to Return
An upgrade to return buyout is usually the lowest dollar amount on paper. The leasing company, in the same fashion as the buyout to keep is passing along to the vendor an incentivized figure that is contingent upon the financing of the next lease that the customer/lessee enters into being held by them. Unlike an upgrade to keep, the return option requires either the vendor or customer to ship the equipment back to the leasing company. Due to the shipping charges, the price differences between the incentivized options from the leasing companies are rarely dramatically different.
If a customer/lessee requests a buyout and is moving to another vendor, a customer buyout is to be executed. The main differences in this option are that the lessee is responsible for maintenance payments to the vendor and the incentive for staying with the same leasing company is taken out since the lessor relationship is concluded. In addition, all equipment will be owned by the lessee after the buyout payment is completed.
In a vendor buyout, the vendor will buyout the lease from the leasing company and not seek another lease through them for the customer/lessee. Ownership is passed along to the vendor after payment and no shipping or maintenance costs will be required since the lease requirements have been satisfied and the vendor relationship with the customer is still intact in regards to maintenance.
Stream of Payments
Sometimes, when a vendor is working with a prospect that already has a lease with a competitor, they will use a method called stream of payments. The stream of payments is a payment given to the lessee to pay the remaining payments on their present lease. When pursued, a stream of payments takes the overall payment required by the customer to the leasing company (lease) and vendor (service) for the duration of the lease period and from there a check is cut to the client for the total. Factors to be cautious of are shipping costs, notification of termination to the leasing company for the stated equipment and ensuring that the equipment location is not in violation of the terms in the lease agreement. Choosing to utilize a stream of payments is sometimes the most affordable option especially when switching vendors but it also can result in costly penalties and unwanted renewals if the details of the contracts are not adhered to properly.
At Copiers Plus, we understand that leasing can be confusing and want to be a trusted resource that looks out for the best interest of our customers. If you would like to learn more about how leasing or buyouts work, or need help navigating a situation you are currently in, we would love to help. Just reach out to us at 800-648-7081 or via 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].
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