Corporations spend several trillion dollars each to acquire equipment such as servers for their data centers, forklifts for their distribution centers, and furniture for their office buildings. Procurement organizations use techniques such as competitive RFPs to obtain the best possible price and contract terms for these assets. However, a significant percentage of spend in categories such as IT, material handling, and office equipment is leased rather than purchased. The opportunity to reduce the financing costs associated with these leases has been overlooked by many organizations.
In situations where financing is required, companies ideally should split the negotiation into two separate deals. The first deal should be to negotiate the price of the product with the supplier. The second deal should be to negotiate with a financing source for the lease. However, most companies have not pursued this split-sourcing strategy because it adds considerably more time to the deal and it requires specialized expertise to negotiate leasing contracts.
LeaseAccelerator hopes to change the way that corporations finance equipment with its cloud-based Enterprise Lease Sourcing application. The platform caters to the procurement organizations of Fortune-500 companies that lease significant dollar volumes of computers, trucks, forklifts, railcars, and other types of assets. When equipment financing is required, the procurement organization can use LeaseAccelerator to quickly create a specialized RFP that outlines the desired leasing structure and terms.
We believe that some companies focused on competitive sourcing may even split leasing into a separate spend category
The RFP is then distributed to LeaseAccelerator’s Global Lessor Network, which attracts capital from hundreds of leasing companies around the world.
The global lessor network is a two-sided market which benefits both the customer and the leasing company. The customer gets access to many different sources of capital that compete to win the RFP. The leasing company gets access to a new source of sales without the typical customer acquisition costs. Michael Keeler, CEO of LeaseAccelerator explains, “The LeaseAccelerator platform helps lessors knit the responses by conducting analysis and quantification. It is a blind bid that is ranked based on the return-on-revenue or cash flow which is strongly beneficial for procurement and treasury.” This process has been reported to generate consistent savings of approximately seven percent on the cost of a lease without adding much effort or time to the sourcing process.
The platform not only helps customers in saving funds but also assists them to return equipment on time before the term end. If no action is taken at term end, many leases will automatically convert to a month-to-month billing cycle, a model known as evergreen in the leasing sector. LeaseAccelerator helps to reduce evergreen spend enabling companies to realize savings of ten to twelve percent. LeaseAccelerator used this framework with Cummins to help reduce costs unplanned and unwanted evergreen spending. LeaseAccelerator also used its sourcing and management capabilities to help the equipment leasing under the procurement organization of Eaton.
Many companies are revisiting their leasing business practices as they prepare for a new set of lease accounting standards scheduled to take effect starting in 2019. Changes to US GAAP and IFRS will require companies to report almost all of their leases on their balance sheet, including those operating leases that have historically only been disclosed in a footnote.“The visibility that will come from bringing these leases on balance sheet is going to drive stakeholders such as the CPO to seek out cost savings. In fact, we believe that some companies focused on competitive sourcing may even split leasing into a separate spend category” said Keeler.