Fleet financing has always been a fairly standard practice, with most fleet managers working under the impression that there was one direction to leasing vehicles. But the introduction of IFRS 16 at the start of 2019 means that leasing has gone into uncharted territories. This new accounting standard has turned your lease into a tangible number on the business balance sheet: Is that number still adding value to your business?
ARI will be on hand at the upcoming Fleet Live conference to discuss the future of UK leasing, specifically the benefits of open-ended leasing versus closed-end leasing. We want to re-introduce the market to this opportunity as the face of fleet continues to change, and provide an all-encompassing option to customers who may worry about what IFRS 16 could mean for tomorrow.
Closed-end leasing has long been the most popular method of leasing in the UK, with around 90 percent of leasing customers opting for this option up until the end of 2018. But the new year brought with it major changes in the industry, as IFRS 16 came into effect. Before IFRS 16 customers liked the simplicity of closed-end leasing, which didn’t have to be listed on your company’s balance sheet.
In 2019 that has changed: Now your procurements sit directly on your financial reports, and we are starting to see more of a benefit of using open-ended leasing as customers in the United States often do, as a value asset. Since your lease is now recorded as a part of your business’ balance sheet, it should be turning a profit.
Open-ended leasing is a transparent leasing option that gives you a new kind of flexibility that closed-end never offered. In an open-ended lease scenario, fleet managers can run vehicles longer, terminate them early, and pay at-cost for whatever it is you choose to do. Closed-end lease does not give you the opportunity to see that value.
Banks have been profiting from this closed-end model for years, largely because customers in the fleet world were unsure of the risk they were taking. A large part of your fleet profit comes from the resale value of your vehicle, so why should the bank collect on that profit when it can go back into your business instead? Putting the sale of your vehicles back into your business is ultimately less of a risk than handing the vehicles over to the bank at the end of your lease.
Transparency & Flexibility
With all these changes, where do you even start? It may seem like an overwhelming task: You are suddenly faced with the financing of vehicles, the lifecycle, and the end-of-use sales and auctions that go into it.
That’s where ARI comes in. As a fleet funding and management company, ARI is already equipped with the professional infrastructure needed to handle your open-ended leases in a way that feels as simple as a closed-end lease. We have handled lease administration, vehicle purchasing and disposal for over 20 years, giving you back control of your fleet without worrying about the details.
You are able to outsource the logistics of an open-ended lease without losing out on the financial benefits of vehicle resale, working with our acquisition team to remarket your end-of-use vehicles with transparency. You can also build a flexible remarketing schedule for your business, based on your fleet operations and what is best for your individual drivers.
When it is time to remarket a vehicle, ARI does not charge for damage or excess mileage on fleet vehicles, which is a major benefit to all of our customer. Our experience has taught us that details like minor damage and excess mileage on fleet vehicles are a regular part of the fleet lifecycle and do little to reduce the value at auction.
We have also adjusted our business model to provide our customers with more resources now that IFRS 16 has come into effect, adding three new leasing business development managers (BDMs). All three BDMs will be at Fleet Live in October to talk to you about your fleet and help you understand the open-ended lease process more clearly.
Come visit us on the Fleet Live floor in Birmingham, and look for us at the Commercial Fleet Awards on the first night of Fleet Live at the National Motorcycle Museum. You can also learn more about Finance Lease with ARI and see how it impacts your bottom line.
Rory Mackinnon is ARI’s UK Manager of Business Development. Find him at Fleet Live on Oct. 8 or 9 or contact him at RMackinnon@ARIFleet.co.uk