How Leasing Can Reduce Your Costs and Unlock Cash Flow

Leasing assets provides many benefits to companies, from more strategic asset use to operational efficiencies and reduced costs. Whether your company is looking to diversify its funding sources or reduce capital expenditure, there are several ways that leasing can help reduce costs and unlock cash flow. Cost efficiencies can be achieved with leasing whether you currently own the assets via CAPEX or you’re looking to start a lease on new assets that haven’t yet been acquired. Keep reading to learn how leasing can help your business reduce costs and boost cash flow.

Quadrent, recently hosted a webinar outlining how companies can master leasing strategies to boost cash flow and proactively manage a potential downturn. View the webinar recording here and click here to read the summary.

Leasing can reduce your total cost of ownership

The total cost of ownership (TCO) is more than just the acquisition price. It estimates all the direct and indirect costs involved in acquiring and operating a product or system over its lifetime. It is a widely accepted measure for conducting equipment cost assessments. Some of the costs of owning an asset, such as repairs and maintenance, will be incurred whether you buy or lease an asset. However, leasing can lower the TCO for assets through lower interest costs, fixing interest rates across the life of the lease, aligning the time of asset use with the lease term, and reducing the cost to maintain assets when they get beyond their optimal life within the business.

When assets are leased, the end-of-lifecycle disposal costs and processes are managed by the lessor. This reduces the business’s costs, from assessing potential disposal vendors to managing the environmental, social and corporate governance (ESG) risk of not disposing of assets securely and legally. As part of Quadrent’s end-of-lifecycle solutions, we only work with R2v3-certified information technology asset disposal (ITAD) partners. Working with qualified ITAD partners means companies get greater transparency over how their assets were disposed and the reporting data, when applicable around the climate impacts of the asset disposal. This data includes asset-level data on emissions and emissions saved from landfill, which is increasingly important as companies become mandated to report on their environmental impact.

Leasing options to reduce costs and unlock cash flow

A range of leasing and asset finance options exist that can help your company reduce its expenses and unlock cash flow. Some of the leasing options that are available include:

• Sale and leaseback: If your company already owns assets purchased via CAPEX, these can be sold to a lessor and leased back to the company in a sale and leaseback. The ownership risk transfers to the lessor, they manage the asset decommissioning and disposal process, and the cash from the sale provides an immediate cash flow boost to the business. This capital can be used to grow cash reserves, while the reduced TCO for the assets can enable sales-driven activities. Under IFRS 15 and IFRS 16, companies need to get specialised advice to ensure the specifics of the lease agreement achieve their commercial objectives while adhering to the accounting standards.
• Lease extension: Assets already under a lease agreement can continue to be used for a further lease term. By extending the lease, the ongoing payments are reduced as the cost to have access to the asset decreases as the asset’s age increases.
• Structured finance: Accessing alternative funding options through structured finance can help the company use future cash flows to secure funding. This unlocks working capital and allows the company to use its assets to both collateralise a loan and generate future cash flows. Some structured finance arrangements can be accounted for off the company’s balance sheet if the costs don’t outweigh the risk.
• Funding soft costs and implementations: It’s important to remember that the right leasing provider can help your company fund soft costs, such as software and implementation costs. In short, almost any physical asset or soft cost that was going to be funded with CAPEX could be leased to defer the costs and spread them over the useful life to reduce the need for upfront capital requirements.
• Vendor options: Many equipment vendors offer financing options with blind discounts to enable their sales teams to increase sales. This is where the underlying price of the equipment is changed to cover the cost of the financing. If you’re looking to finance sales-enablement activities, finding vendors that offer blind discounts can be a suitable option.

Unlock cash flow and proactively reduce costs with Quadrent’s Asset leasing solution

In >times of economic uncertainty, reducing costs and unlocking cash flow can help a company build its cash reserves and provide an injection of capital to assist with revenue-generating activities. Whether your company owns assets outright through CAPEX or you’re looking to access new assets through leasing, a range of funding options are available. By getting expert advice to ensure the lease agreement drives the desired commercial outcomes while adhering to the lease accounting standards, such as >IFRS 16, you can ensure any current and future lease agreements drive cost savings while effectively managing risk.

Quadrent's asset financing and leasing solutions can help you unlock cash flow and transfer the risk of asset ownership. Click here to contact our team for more information.