Lift Truck Tips: Finding the flexibility in lease agreements

Many lift truck owners have found value in leasing equipment rather than renting or buying outright. However, many are also in the habit of selecting a generic term length and requesting a quote.

Bill Buckhout, manager of Raymond Leasing for The Raymond Corp., says leases are no longer off-the-shelf financial products. Instead, leases provide the best value when tailored to a specific user’s application and operations.

“There are a number of things to consider, but too many customers only look at the interest rate and the monthly payment,” says Buckhout. “In advance of any equipment acquisition, a customer must first sit down and define what is needed.”

The lease term, for instance, is not limited to three, four or five years. The calculation should instead start with the economic life of the truck, which is typically about 10,000 hours of use. “If you divide that by the hours of use in the application, you will rarely come up with something like 36 or 48 months,” says Buckhout.

This is where fleet management practices and a clear window into actual use come in. Data is critically important to the structure of a lease, says Buckhout, and it can provide the confidence among the customer, lift truck supplier and finance partner to create the most cost-
effective agreement. “That specificity wasn’t always there,” he says. “If a facility was open for eight hours, they assumed eight hours of utilization, when in actuality it was closer to four.”

Once you have the data, structuring a program is relatively easy, Buckhout says, and there can be flexibility that will allow for some variation in the data without a customer paying too much for it. After all, says Buckhout, “few customers can say that five or six years in the future their operations will look exactly the same.”

Flexibility is built into leases during early discussions of what Buckhout calls the “what-if” factor. What if the facility closes or adopts automation, volume increases or decreases or the mix of product changes? What happens if a customer has to return a lift truck, or uses it more than planned? What happens if the customer needs to return all of their equipment?

“That discussion has historically never happened,” says Buckhout. “As a result, you saw things like early termination fees, or the equipment buyout price being the sum of the remaining payments plus the residual. Both are very punitive structures. Historically, changes came with fees, if they were allowed at all, but now that is less often the case.”

The leasing industry is facing a customer base unwilling to sign a long-term agreement without flexibility built in, says Buckhout. “But as the pressure rises to drive costs out of distribution, the right approach to leasing is a great way to save.”