Organizations often opt to lease copiers due to the financial flexibility it provides. Copier leasing allows businesses to conserve capital by avoiding hefty upfront costs associated with outright purchases. This financial flexibility enables companies to allocate resources to other critical areas of operations, fostering growth and innovation.
Moreover, leasing provides the opportunity to regularly upgrade to the latest copier technology without the burden of ownership. This adaptability ensures that organizations stay competitive in a rapidly evolving technological landscape. Consider that even a few years ago, integrating your copier with cloud services like Microsoft 365 wasn’t even really considered. These days, it’s not uncommon for organizations undergoing digital transformation to seek out copiers that will scan directly to cloud email and cloud storage services.
In essence, copier leasing emerges as a strategic and cost-effective solution, offering a symbiotic blend of financial prudence and operational efficiency for businesses of all sizes.
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Types of Copier Leases
In the realm of copier leases, businesses typically encounter two primary options: operating leases and capital leases, each with distinct features and advantages.
Operating leases, also known as “fair market value leases,” are characterized by their short-term nature and flexible terms. These leases typically span a duration of one to three years, offering businesses the advantage of utilizing cutting-edge copier technology without committing to long-term ownership. At the end of the lease term, organizations have the option to either return the copier, renew the lease, or purchase the equipment at its fair market value. This flexibility is particularly appealing for businesses that prioritize staying up-to-date with the latest technological advancements.
Benefits of Operating Leases:
- Lower monthly payments compared to capital leases.
- Easy and cost-effective equipment upgrades.
- Reduced risk of equipment obsolescence.
On the other hand, capital leases, also termed “finance leases,” are characterized by longer-term commitments and the inclusion of a purchase option at the end of the lease period. These leases typically extend for three years or more, with the lessee essentially assuming ownership responsibilities of the copier during the lease term. While capital leases require higher monthly payments compared to operating leases, they provide businesses with the opportunity to eventually own the copier outright, often for a nominal fee of $1 at the end of the lease.
Benefits of Capital Leases
- Eventual ownership of the copier.
- Potential tax benefits, as the copier is considered a capital asset.
- Long-term cost-effectiveness for businesses with stable, long-term copier needs.
In essence, the choice between operating and capital leases hinges on the specific needs and preferences of the business. If you want to minimize cash outflows and more easily upgrade your copier fleet, the Operating Lease makes the most sense. If you view your MFPs as a long-term asset that you want to own for the long haul, look to a Capital Lease.
Terms and Conditions for Copier Leasing
Lease durations vary based on the type of lease chosen. For both operating and capital leases, common terms typically range from one to five years. Most common are leases of three to five years. The duration of the lease should align with the organization’s copier usage needs and technology lifecycle. Many times when we are performing a Document Activity Analysis for new Managed Print clients we see a mismatch between lease duration, the print volume, and the rated duty cycle of the client’s MFP.
Consider these two examples, where lease duration and model capacity are not aligned.
Example 1: The organization has a robust copier rated far beyond their print volume, and a shorter duration lease.
|Printer Lifecycle||1,000,000 prints|
|Print Volume||100,000 prints per year|
|Lease Type||Fair Market Value (FMV) lease|
|Lease Duration||36 months|
|Total Prints||300,000 prints|
|Rated Prints||1,000,000 prints|
|Prints vs. Rated Prints||Below by 700,000 prints|
In example 1, the organization is essentially leaving prints on the table due to the short lease duration. They would be better off selecting a lower capacity machine to better match their print volume, or choosing a longer lease duration. Both options would lead to lower monthly costs. This might also be a situation where it makes sense to buy the copier from the leasing company at the end of the lease term, as it has some years of use left within its rated design capacity.
Example 2: The organization over utilizes the MFP and a long term operating lease
|Printer Lifecycle||100,000 prints|
|Print Volume||10,000 prints per month|
|Lease Type||Capital Lease ($1 Buy Out)|
|Lease Duration||60 months|
|Total Prints||600,000 prints|
|Rated Prints||100,000 prints|
|Prints vs. Rated Prints||Above by 500,000 prints|
In example 2, the organization has a smaller print engine and a longer lease duration. At the end of their 60 month lease, they’ve worked the unit beyond it’s expected lifecycle and they’re stuck owning worn out printing equipment.
Let me tell you – copiers are extremely hard to sell used, or even give them away. They’re huge, heavy, they take up a lot of space, and they require technicians to keep them up and running. Many times I’ve seen used copiers posted for free on Craigs List and Facebook Marketplace, and those listings languish for months. In this situation, the organization should have chosen a more robust machine with a higher duty cycle. While more robust copiers do cost more, they usually offer a lower cost per print, too. Sometimes over the long haul, the more expensive copier is the cheaper one to own and operate. If they were in an operating lease, they could have passed the worn out copier on to the Leasing company to deal with.
Operating leases allow businesses to regularly upgrade to newer copier models, ensuring access to the latest technology. At the end of the operating lease, lessees can choose to return the copier, renew the lease, or purchase the equipment at its fair market value. The Duration of operating leases tend to be 36 – 60 months.
Important Terms and Conditions for Operating Leases:
Fair Market Value (FMV): This term defines the cost to purchase the copier at the end of the lease. It’s crucial for lessees to understand how FMV is determined and whether it aligns with their budget and expectations.
Flexibility to Upgrade: Operating leases offer the flexibility to upgrade to newer copier models without the burden of ownership. Lessees should ensure that the lease agreement clearly outlines the process and terms for equipment upgrades.
Capital leases typically have longer durations, usually exceeding three years. These leases are structured in a way that the lessee assumes ownership responsibilities of the copier during the lease term. At the end of a capital lease, the lessee usually has the option to purchase the copier at a predetermined price. This is essentially the same thing as going to the bank and asking for a loan to purchase your copiers.
Important Terms and Conditions for Capital Leases:
Ownership Option: One of the critical aspects of a capital lease is that you will purchase the copier at the end of the lease term. Lessees should clearly understand the terms and conditions associated with exercising this option, including the purchase price and any applicable fees.
Maintenance and Repairs: Unlike operating leases, where maintenance could be included, capital leases may require the lessee to handle maintenance and repairs. It’s essential for businesses to clarify their responsibilities in maintaining the copier’s functionality throughout the lease period.
Understanding these lease terms and conditions is pivotal for businesses entering into copier leasing agreements. Whether opting for the flexibility of an operating lease or the potential ownership benefits of a capital lease, being aware of these terms ensures a smoother leasing experience and helps businesses make informed decisions based on their specific needs and goals.
Understanding the Costs of Copier Leasing:
Copier leasing provides businesses with a flexible and cost-effective solution compared to outright purchasing. By delving into the associated costs, one can make an informed decision based on budgetary considerations and operational requirements.
Monthly Lease Payments:
In a copier lease, businesses make regular monthly payments for the usage of the copier. The amount is determined by factors such as the type of copier, lease duration, and additional services included.
60-Month Fair Market Value (FMV) Lease vs. Buying:
Leasing a copier for 60 months under a Fair Market Value (FMV) lease offers financial advantages compared to purchasing outright. The 60 month FMV Lease provides the absolute lowest monthly cost to get your new copier in your office and printing for you. That hypothetical $10,000 copier might set you back $185 per month beginning 30 days from now. And it’s entirely possible that between the lease and the use bill on your current copier that you are spending way more than that for your old hunk of junk. You might end up in a situation where you are lowering your monthly printing expenses with no money out of pocket. That’s a fantastic scenario!
Purchasing a copier, while providing ownership from the outset, involves a significant upfront investment. While one-off copier purchases can be stomached by many businesses, larger organizations want to keep their printer fleet standardized. A half dozen MFPs are a big purchase, and sometimes they need to acquire hundreds.
Hidden Costs and Fees in Copier Leases
Despite the apparent transparency of monthly lease payments, it’s essential to be aware of potential hidden costs and fees that might impact the overall leasing expenditure. Common hidden costs include:
Copier Leases are Taxed
Copiers are subject to a use tax, and tax formulas can be complicated depending on where you do business and where the copier is physically located. It’s not unusual for taxes to be calculated while the lease company sets you up for payments after acceptance of the machines.
Municipalities are not subject to use tax, but the machine is technically the property of the leasing company. And the leasing company is subject to the tax. In this situation, your interest rate is adjusted upward to cover these taxes. I hate to tell you, municipalities – you’re effectively paying the tax.
For other types of organizations, you should expect to see a tax added to your payments. If you want to know what it is ahead of time, be sure to ask your copier dealer.
Interest Payments in Copier Leases
Make no mistake about it – leases are essentially loans. You’re paying interest on this copier transaction. You’ll want to make sure that your copier dealer is bringing a premier financing partner or the manufactuer’s financing captive into the deal. These companies offer the best rates when your organization has good business credit. Small, unknown leasing companies charge higher rates of interest because they have a higher cost of capital and lower transaction volumes. Their most useful niche are riskier transactions that the prime leasing companies don’t want to touch – namely new businesses and businesses with bad payment histories.
One of the shadier practices in the copier world is to bake a certain number of prints into your lease agreement. If you tell your dealer “I don’t every want my bill to change!” this is what happens. They sell you more prints than you need, and they finance them into your lease. This is a horrible situation to deal with. First, you’ve signed yourself up for interest payments on prints you will make in the future. Second, you might not even make those prints in the future. Third, it’s way harder to upgrade your copier earlier, if business needs justify it. And lastly, if you want to purchase that FMV copier at the end of the lease, it’s going to have an inflated residual value. I promise you that salesperson didn’t do you any favors at all. But they’re likely to drop by with candy to say thank you, because they made a nice bonus on this sale.
If you want to lease smarter, demand that your lease agreement with the finance company is not mingled together with the maintenance contract of your copier dealer.
Excess Usage Fees
If you have prints baked into your lease, what happens if you print too much? You’ll face an overage charge. Sometimes these prints cost more than your pre-paid clicks. This makes no sense at all. If the copier dealer is happy to make $0.01 per black and white print, they shouldn’t be charging you $0.015 for an extra print.
Copier Leases have Early Termination Fees
Terminating a lease before its scheduled end can incur penalties. Businesses should carefully assess their long-term copier needs to avoid unforeseen costs associated with early termination. If you want to end your lease early, chances are the finance company is going to ask for the sum of all payments due. So you’ll pay the same amount, but you’ll pay it sooner. That makes the effective interest rate skyrocket!
If you are stuck in this situation, there are a few things that you can do:
Switch Brands: Copiers are an extremely competitive industry, and sometimes manufacturers will incentivize customers to make the switch to their equipment. We are very fortunate in that Sharp offers us market development funds to gain market share on the Delmarva Peninsula. We’re more than happy to present the business case to our reps why they should help you leave your current copier dealer.
Haggle: Use the buy-out as a point of contention. This could mean refusing to use that leasing company again or refusing to use the same copier company. Sometimes you must be the sticky wheel to get some grease. If either vendor is at risk of losing you as a customer, they might make concessions to keep you happy.
Wait it Out: You might choose to make due with your current print arrangement a little while longer. You’ll get to use those pre-paid prints and your buy out number decreases. At some point you’ll probably reach a break even point, where moving to a new print solution costs the same as the current solution. At least you’ll be cashflow neutral at that point.
Finance the Buy-Out: Sometimes wrapping your buy-out costs into the lease is your best option. If you’re leaving an abusive relationship with your current copier company, you just might need them to go away. Just be careful with this option, as it’s not unlike being underwater on your car loan.
The Cost of Return Leased Copiers
If you do a FMV lease, you’re on the hook to return your old equipment to the leasing company. If you’re leaving on bad terms with the incumbent copier dealer, this can be a dicey situation. Your company probably doesn’t know who to call to transport these machines, and you probably don’t have the in-house expertise to deal with properly prepping them for transport, either. Don’t expect the company that’s losing your business to do you any favors here.
Your best way to deal with this hidden fee is to have your new provider handle the returns on your behalf. They’ll be eligible for discounted industry rates and probably have a favorite transportation company to call. They’ll also be well practiced packing those MFPs up before the truck arrives.
If you don’t want to pay cash for the return of your old copiers, have your new vendor add the costs into your lease. It’s usually cheaper than trying to do returns on your own, even with the interest payments you’ll make. It also saves your staff time.