Wednesday, July 22, 2009

Why Your Customer Should Re-Write Your Lease Agreement: It's About Them, Not You.


One More Dead Cow, in the Summer of No Sacred Cows - with another List of 22 at the end of the article.

Read on...
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For two decades, I have been helping prospects and clients understand, digest and work around lease agreements.

Cutting my teeth back in the 80's on technology leasing with IBM and Compaq.

I got the gist when working for CINTAS , reviewing uniform service contracts with my prospects.

At CINTAS, I was witness to the most one sided, legal extortion schemes. My competitors, usually, small time, local "linen" service company contracts were stunning.

Evergreen clauses that would never end. Price increases that where arbitrary and whimsical.

And closing statements that go like, "... just sign, don't question, or you will be sleeping with the fishes - ifyouknowwhatImean, andIthinkthatyoudo..."

The companies I sold for implemented decent agreements. So it was always one of my selling approaches to review competitors agreements and compare to mine - line by line, before signing.

That's how it all started.

Fast forward to present day, and it's like Deja Vu all over again. Just last week, I sat down with a prospect to review their existing lease.

We had a very nice discussion, we used lots of nice words talking around the subject when I straight out told him,

"...dude, you're screwed for the next 28 months. How the hell did you let this happen and what are you going to do to insure it doesn't happen again?"

The same old argument, same result.

"It's Standard For The Industry"

Dozens of times, the poor fellow across the desk from me says, "the copier rep said it was standard leasing procedure...standard for the industry...we all do it..."

Wow, that must have made you feel "special" - as in short-bus special. Did you say, "thank you sir, may I have another?"

Speaking of standard, I pull out lease agreement after lease agreement, guiding my prospect through the labyrinth of "guarantees", automatic renewals, termination and lease end responsibilities, shipping, property tax, processing fees, lease payment dates; on and on and on.

The subject changes to Capital Expenses vs. Operational, 60 Month vs. 36 Month, FMV vs Dollar out and combined lease/service agreements.

Pretty standard stuff.

And then we open up to the philosophical -

"...What, precisely is an equipment lease, anyway?" I ask.

Glazed eyes, a moment of awkward silence and then, "well, to me, it is a way for me to use equipment and not pay for the whole thing all at once..." he responds. Of course, I nearly fall out of my chair - I think he may just get this, there is hope.

Specifically, a lease agreement is a means by which a company (or person) gets to utilize leased items, paying an agreed, recurring amount over a predetermined, agreed period of time.

The benefits can be many, but the primary reason is to use equipment without a huge cash outlay.

The cost of this luxury - a "fee" similar to interest. This "fee" as I call it, is incorporated into each payment. For a lessee, that's lease jargon for "customer", to determine this amount, simply multiply the number of payments by the monthly amount and compare this figure to today's purchase price.

The difference is what you are paying for the ability to utilize equipment, over time.

There are a great many details involved with leasing and lease agreements - I won't go into all of them now - for some clients, just knowing the above can mind-shattering.

So once we agree that the basic function of a lease is for people to use equipment over time without purchasing the gear I ask,

"...should a lease be used as a customer retention device? Or should the quality of the relationship determine the future?"

- again, blank stare and crickets. Just when I think his head is going to explode like in Scanners,

"No Greg, it shouldn't. A lease is not a customer retention technique"

I think he's got it!

Anything more then payment amount and length of term(other than the "if you don't pay us, we will come get you, clause) is marketicture.

Our conversation dwindles to the mundane. I promise to keep in touch with him, he promises to negotiate "very vigorously" over his bloated service agreement and we part ways.

He on his 28 month journey of pain - which will be punctuated by him finding out there is a HUGE amount due at the end of the lease in the form of shipping charges - charges that can magically disappear when he re-ups for another 60 months.

Me, I get to go find someone else to help.
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For those about to get into a lease - take heed, there are many things you can do to maximize your position as a lessee.

Of course I have a list.

A list of 22 steps/insights you can review and ignore before jumping into your next 62 month sentence.

Here are three:

1. Prior to your very first meeting with a prospective copier vendor, request he bring a copy of his lease agreement and service agreement to LEAVE BEHIND for your review.

This will set the tone for the rest of your relationship.

If you get ANY resistance at all, if he doesn't bring the document or let you keep it or uses phrases like, "...it's our corporate/legal policy not to release this information until executing a lease..." or "...I can let you read it, but I need to take it back with me..." or the best ever "...it's standard in our industry..." tell him you don't want to do business with him.

2. Have him explain the benefits of leasing vs purchase.

This will be revealing even though you already know why you want to lease. Most copier newbies don't really know why, they have just read the GE Capital or IKON Financial
"Why Leasing is Good" memo.

3. Then ask if he recommends a 48 or 60 month lease and why.

He should come back by saying he never recommends anything over 36 months.

Want the complete, DeathOfTheCopier list?

Hit me up with an email, use that Contact Me button thingie on the left - and I will send the list to you directly.

Want to Learn More?


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2 comments:

  1. Hi Greg, You are right on so many points in this article, with current economic conditions we as office equipment sales people need to educate the customer not just on equipment but what leasing is all about.

    When I quote equipment I always have a copy of lease documents with the proposal and always list the purchase price because you never know if the customer decides to purchase instead of lease when they compare the (FEES) of leasing to purchase. I find this approach very effective in building (TRUST) and in turn I retain customers for long term.

    Let’s face it customers are people and people want to know the true facts, if you are not honest and up-front they will never buy from you again and they will tell as many people as they can about there bad experience and that is really bad for business.

    Chuck @ www.MarylandCopierCompany.com

    ReplyDelete
  2. Chuck - Agreed.

    But one cautionary tid-bit:

    The current economic environment, although cyclical,has been exasperated by those WHO DIDN'T READ or understand their mortgage as well as those in the industry who didn't explain the agreement.

    Point is, we can only do so much.

    I agree, customers are people.

    People are flawed.

    We can't save all of them.

    Thanks for commenting, keep coming back.

    ReplyDelete