A common philosophy is that you purchase things that appreciate, or increase in
value over time, and finance or lease those things that depreciate, or lose value
over time. Though it makes no difference in your commission if a customer purchases
equipment, it will make a difference for future business. Customers that own equipment
are less likely to upgrade their system unless it just won't function.
A customer will approach a lending institution and borrow the money to purchase
the equipment. The company and the lender agree on a payment, terms and conditions,
and sign a contract. The intent of the customer is to own the equipment at the
end of the contract. The customer understands that they will have to provide maintenance
and insurance for the equipment. This payment could fall under a capital budget.
The tax effect is to depreciate the equipment.
A rental contract consists of a payment, terms and conditions, with maintenance
usually included. Insurance is still the responsibility of the customer. When
renting equipment, the intent is ordinarily not to own the equipment, but to pay
a fee for the use of the equipment. Rental costs are commonly found in the operating
Characteristics of a lease include payment, terms and conditions, with the responsibility
of the maintenance of the equipment, and insurance belonging to the customer.
Like renting, the intent should be to pay for the equipment while using it. Often
this is the objection to leasing. "I pay all this money over the years, and
I still don't own it," is a common lament of a customer. This is not the
design of an equipment lease. Purchasing equipment at the end of a lease is the
most expensive way to acquire equipment. The lease payment will ordinarily be
paid from the operating budget.
All of these methods of acquisition have similarities, and often customers
are confused as to the appropriate contract for them. One way to determine which
plan is appropriate is to consider the customer's specific situation. Will the
system be obsolete at the end of the payment period? What is the anticipated growth
of the company? Will the system by too small for their needs? These questions
must be discussed during the needs analysis to help you narrow down the equipment
choices, and help the customer plan wisely for the future.