RFP’s: Just a Waste of Time?
If you are like supply chain and purchasing professionals, the addition of new or used equipment begins with a telephone call to the usual suppliers. Whenever there is a plan to buy equipment, the process begins with a request for price quotes. The quotes arrive and you shove on your negotiation hard hat and prepare for the battle of wills. Who wins? Usually the victor is the one with the most patience and perseverance.
Why waste time writing out equipment specs and financing options for the next equipment addition? Everyone knows that writing a Request for Proposal (“RFP”) is something the billion dollar companies do when spending several million dollars. Why take the time to write a complicated RFP when a phone call will get you what you want? The price is all that you don’t know.
Procurement professionals begin the buying process full of optimism and then find themselves stuck in the beginning phases of negotiations far too long. How can you avoid the getting stuck?
When current equipment is broken or has become undependable, an immediate replacement seems like the best solution. However using the RFP process can save your operation money and time if you have the basic steps established.
Large and Small Companies: All Save Big Money with the Lease RFP
Kevin, a North Carolina Printer Tries It
Big and small manufacturers, accounting and law firms, distribution organizations and most county, state and local governments use the RFP method for acquiring goods and services. Using a modified RFP or Term Sheet is sufficient when buying equipment less than $100,000.
The owner of a small commercial printing company in North Carolina used, a Lease RFP when purchasing a $100,000 digital copier for his business. The owner, we’ll call Kevin, used the services of a lease review expert who helped him draft the RFP. When Kevin initially began to acquire the new equipment, he had one lease proposal from the equipment supplier’s primary resource. Kevin decided to invite four additional lease companies to present finance proposals in response to his RFP Term Sheet. He was surprised to find that the best pricing came from his bank’s leasing company. He reduced spending by 14% using the lease RFP process.
Do Law firms Ask for HELP?
One Midwestern based law firm in the top 100 law firms in the United States, used the Lease RFP process when they prepared to move into their new corporate headquarters. They chose to lease $25 million dollars of high-tech telephones, office furniture, computers including laptops, desktops, servers and technology infrastructure their video conferencing equipment.
The firm’s Chief Operating Officer, we’ll call Audrey, knew what managers and business owner everywhere know; leasing equipment makes good business sense. According to the U.S. Department of Commerce, 80% of U.S businesses, large and small, lease rather than pay cash when adding or upgrading equipment and needed assets.
Both Kevin, the business owner and Audrey, the chief operating officer, agreed that the best leasing deal does not always come from the equipment dealer. Thirteen leasing companies and financial institutions responded to the law firm RFP. After a full review of all proposals and lease contracts, four leasing companies were invited to advance to the next phase.
Leverage: Simultaneous Negotiations
The firm conducted negotiations with all four leasing companies simultaneously. During the negotiations, one leasing company resisted making changes that Audrey required. Because she had three other leasing companies to meet her terms, Audrey could shift lease volume to any one of the other three leasing companies up until final equipment funding was required.
Using the RFP process leveled the playing field. It was easier for Audrey and her operations team to spot the differences in various financial solutions and the equipment benefits. Dealer presentations changed from glitzy sales sizzle into firm offers and contracts. Once the selling price and lease terms are on paper in a proposal, negotiation can begin.
Could You Save a Million Dollars?
The result of following the process shaved more than a million off the total lease cost for the law firm. For big or small companies, the process worked for both. In times of financial restraint, consider investing time in creating and managing a lease RFP.
Taxes and Leases must work together or you will pay too much tax on every equipment lease.
What your lease contract states, in case you didn’t the Read the Fine Print is as follows:
- The customer (Lessee) is responsible for all taxes on leased equipment. The three most common applicable taxes are sales, use and property.
- Leasing companies (Lessors) remit the tax monthly to the proper taxing authority. Lessors invoice the Lessee for the taxes. For property taxes, the Lessor may add a fee for tax collection and filing services.
- Some Lessors assess 1/12th of the property tax each month and include the tax in the monthly invoice. Other Lessors surprise the customer with an invoice for the full tax amount plus a fee at the beginning of the new year.
What Could Possibly Go Wrong? Help customers and clients or you may lose them.
Advise your customer that taxes will be added to their lease payment. It’s better to be proactive than to have a customer find a “surprise” on their first lease invoice. They may blame you for not telling them the whole storyIn some states, Lessees may pay the sales or use tax at lease commencement in one lump sum. Know the applicable tax provisions in your state. Let customers decide which works best for their business cash flow.
- In some states, Lessees may pay the sales or use tax at lease commencement in one lump sum. Know the applicable tax provisions in your state. Let customers decide which works best for their business cash flow.
- Each equipment dealer should know if the equipment they sell is tax exempt. Offer your customer a tremendous service and save them money when you know and share this information.
- Recently a Michigan printer received a $2,000 use tax refund on a digital copier lease. Neither their equipment dealer nor the printer’s accountant knew that digital copiers were tax exempt for Michigan printers. After some tax research, the leasing company received the correct refund support information and remitted the tax refund to the printer immediately.
- If tax is applicable, know the correct tax rates for your customers. One Texas company was billed too much sales and property tax. Their business location had been identified by the dealer in an incorrect county and school district. This error triggered extra taxes. Neither the dealer nor the leasing company took responsibility for this error.
Go the extra distance for customers. In 2013, this is what the guys who say they offer “Great Service” will do. They just Do It!
It all starts as sweet as a honeymoon escape to an exotic island. They walk into the sunset, in love, for the next five years.
What Margaret (the buyer) Remembers
Charlie, the sales guy, introduced us. It was love at first sight.
My old one was just not working out anymore: too slow, always in need of repair and unpredictable. Or maybe “IT” had become technologically obsolete. “IT” could be a copier, phone system, fork lift, over-the-road tractor and trailer or printing press.
Margaret thinks….this new, shiny, fabulous creature will fit in perfectly. There’s enough room in our operation for it. “IT” is affordable, sleek, flashy and flexible. This will help us attract new customers, will always work perfectly and be more productive than my best employee.
Charlie showed Margaret how easy the lease would be to get in and out of. All “you’ll have to do is write the check for the first payment and sign the four-page contract.” Margaret thinks…what could possibly go wrong? Margaret thinks this is a marriage made in heaven.
Unlike a real marriage, this one is for 5-years. At the end of the 5-year lease, the options are to return the old one and trade up to a new unit, no fuss, no hassle. In a perfect world, that is how it is supposed to go.
Divorce Court: It’s Your Fault, Right?
Unfortunately, this is how many business owners and managers remember the simplicity of starting a lease. Cost justification logic may disappear. The love affair between a business owner and their equipment is complicated. I’ve seen “Yellow Iron Romance” in all industries. It matters little whether the fascination is for a dozer, an 18-wheeler, a big name digital copier or a high-tech software solution.
3 Pieces of Matchmaker Advice
If you are acting as the “Matchmaker” either in a role of recommending the solution or selling the solution, you have a big responsibility. The job does not end when the commission check arrives. The relationship may not be a happily ever after thing. What can go wrong?
- Equipment does not work as promised. Who is to blame? Stay connected to your customer and intercedes with the service people when necessary.
- If the lease renews automatically, an Evergreen Lease, remind your customer in plenty of time before the end of lease notice is due. You’ll help them avoid an automatic lease renewal.
- If the fair market value purchase price is ridiculous and the customer feels lied to, you are the one who introduced the leasing company. Mediate for your customer.
7 Tips to a Happy “Marriage”
- Keep your long range plans in mind. New and shiny may not be what you need. Idle equipment does not pay lease payments.
- Evaluate financial options carefully. Leases are easy to get into and have low up-front payments. Is a lease the right financial tool for this specific machine, solution or situation?
- Call your bank for their financing options. Their financing options may surprise you.
- Read and understand the lease contract BEFORE signing. Negotiation is more difficult after the lease commences.
- Know and understand the definitions of all your end of lease options. That means talk to the leasing company, not just the equipment sales person. Equipment sales people are not leasing experts. Their job is to know their equipment, service or solution.
- If your lease does not have 3 options at the end: Buy, Renew or Return, negotiate these in.
- Negotiate! Negotiate! “Everything is negotiable is only you ask.”
There’s much more to an equipment sale than the sizzle. It’s hard work. And just like a real marriage, when it works, it’s a beautiful thing.keep looking »