Funding Options

The most common forms of funding company vehicles are as follows:

With alternative names) Contract hire or Operating lease

Contract purchase or Lease purchase, hire purchase, conditional sale

Finance lease or Full payout lease

Outright purchase or Cash purchase

How it works…..

• Company hires a vehicle for a pre-determined period and mileage at a fixed monthly rental.
• The leasing company takes all risks and rewards associated with the vehicle.
• The leasing company retains ownership and the vehicle is returned at the end of the period. The company cannot take full ownership.
• The rentals take into account the cost of the car, depreciation and road tax plus additional services if required such as maintenance and breakdown.
  

Financial implications

• Little initial outlay is required
• Payments are lower than some forms of funding as they take into account the anticipated future value
• Funding off balance sheet under current rules therefore improved gearing
• Leasing company can reclaim VAT on the capital cost and pass this on through reduced rentals
• Removes residual value risk
• Removes maintenance risk if under full maintenance contract
• Fixed outgoings means increase budgetary control
• Lines of credit can be better utilised for investment in core business
  

How it works…..

• Company enters into a finance agreement for a vehicle for a pre-determined period and mileage at a fixed monthly rate.
• The leasing company takes all risks and rewards associated with the vehicle.
• Legal ownership which can be transferred to the company upon payment of an optional balloon payment at the end of the period
• The payments take into account the cost of the car, depreciation and road tax plus additional services if required such as maintenance and breakdown.
  

Financial implications

• Little initial outlay is required
• Payments are lower than some forms of funding as they take into account the anticipated future value
• Funding on balance sheet.
• Removes residual value risk.
• Removes maintenance risk if under full maintenance contract.
• Fixed outgoings means increase budgetary control.
• Lines of credit can be better utilised for investment in core business.

Finance lease

How it works…..

• Company enters into a finance agreement for a vehicle for a pre-determined period at a fixed monthly rate.
• The company takes all risks and rewards associated with the vehicle.
• The leasing company retains ownership. The company cannot take full ownership. At the end of the period the company normally sells the vehicle to a third party or continues with the agreement at a nominal rental known as ‘peppercorn rent’.
• The payments take into account the full cost of the car. Additional services are usually not provided.
  

Financial implications

• Little initial outlay is required.
• Payments are higher as they represent the full cost of the vehicle.
• Funding on balance sheet.
• Leasing company can reclaim VAT on the capital cost and pass this on through reduced rentals.
• Residual value risk lies with company.
• Lines of credit can be better utilised for investment in core business.
  

How it works…..

• Company purchases vehicles using cash reserves or other funds not associated with the vehicles.
• The company takes all risks and rewards associated with the vehicle.

Financial implications

• Large outlay required.
• Funding on balance sheet.
• Residual value risk lies with company.

Based on market share, contract hire is the most popular funding method in the UK as it suits most businesses from a financial, administrative and risk perspective.

However, there are many different factors that a company must take into account in order to determine the most cost-effective funding method including:

• Internal rate of return
• VAT recovery rate
• Corporation tax position
• Cost and use of vehicles

The only accurate way of determining the most cost effective funding is to produce discounted cash-flows (DCF) to compare the various methods.

Fleet procurement

Purchasing the right fleet services for the right price can be a difficult task. How do you know what services are available? How much should they cost? How do you ensure price protection? How do you ensure that the supplier has the right capability? What about contract concessions, profit shares etc etc etc?

With our assistance we will get you the right deal for your business.

Our experience and insight into fleet procurement has enabled us to improve every single fleet contract we have reviewed for our clients. Not just in terms of price – we have also seen service levels improve. Our team has worked on both sides of the fleet procurement fence – for both fleet supplies and for fleet buyers. This enables our clients to get the most value from their fleet providers.
Our fleet procurement solutions include:

• Contract review.
• Specification of fleet requirements.
• Preparation of tenders (RFI & RFP).
• Supplier evaluation and selection.
• Contract negotiation.
• Obtaining contractual concessions, for example lease early termination.
• Obtaining profit share arrangements, for example on maintenance contracts.