This week the MSPAlliance launched its Managed Services Leasing Program for members. Some people may not immediately understand the role or value leasing plays in managed services so I'd like to take this opportunity to explain this program in greater detail.
Lender Neutrality - While there are other leasing programs out there we felt that having a leasing program that was not tied to any particular lender was important. This gives the members comfort knowing they will be getting the best deal possible.
MSP Stability - Many leasing programs are incredibly risky because the leasing companies/brokers do not know the applicants very well. Because the MSPAlliance screens its members this leasing program can be much more flexible in getting deals closed due to the high caliber of the applicants.
Accredited MSPs - Companies who have taken the Managed Services Accreditation Program exam are much more likely to be stable MSPs, and therefore, much less likely to default on a leasing deal. In the unlikely event that an accredited MSP cannot fulfill its obligations then other accredited MSPs can easily step in and take over. This makes lenders much happier and safe.
Ease of use - this leasing program is very easy. Becuase the MSPAlliance members are already known, this makes the approval process much more streamlined.
I hope this little overview helped. If you are a MSPAlliance member and would like to start using this leasing program for your future deals you can visit www.mspalliance.com/leasing for more information.
Wednesday, July 16, 2008
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5 comments:
Leasing is definitely one of the musts for most MSPs.
I'll just add some tips for MSPs when speaking with their customers – which is ultimately what leasing is about – making it easier for end customers to buy services they requires.
Key benefits would typically include (from the end-customer’s perspective):
- Freeing up of working capital (ie. pay for equipment in periodic installments)
- Current & up-to-date IT equipment for your business (re-leasing new kit is easier than replacing purchased inventory which is likely being depreciated)
- Off balance sheet expenditure (go for OPEX not CAPEX where possible)
- Some solutions are also supplemented by equipment trade-ins and end-of-life replacement packages on networking and IT equipment based on customers' commercial goals as well as environmentally friendly disposal services of hardware that no longer has any market value.
Keep above in mind when positioning leasing with your customers.
Everything so far is very well said. What can get lost frequently is understanding the relationship between the lessor and the MSP and the end user. The most productive form is where the parties are aligned in series rather than parallel. The lessor exists to help the MSP increase incremental sales. Of course this is not mutually exclusive with the end user's interests but the relationship between the end user and lessor traverses through the MSP. The lessor relies on the MSP not only for the customer, which remains the customer of the MSP, but also for collaboration on effective marketing, structuring and pricing. All parties benefit in this arrangement.
I have been curious as to who actually signs the lease contract and thus is liable for the monthly payment? Is it handled as an addendum to the MSP service contract or is the lease signed by the client and thus has the ultimate responsibility for the payment each month? If the lease is defaulted on is the MSP liable at all? Or is the lease the responsibility of the MSP who signs the agreement with the Leasing company and "owns" the equipment until the end of the lease. Then if a client stops the MSP service, the equipment is given back to the MSP as excess equipment and re-deployed to the next client. Also, in a dollar buyout situation, who ultimately owns the equipment and how should that show up on the books?
My compliments to the informed questioner.
The leases are almost always written with the end user as the obligor. From time to time exceptions get made for reasons such as a municipality's mandate but that is the exception since it creates debt on the MSP's balance sheet and forces them to recognize sale income over time (undesirable). The lease can be either a simple stand alone agreement or integrated into the overall statement of work provided by the MSP and billed together. In terms of value creation, integrating the offerings produces tremendous benefits for all parties. At Varilease we have confidence in the members of the MSPAlliance due to the Code of Ethics and Accredation Program. There needs to be some documentation in place governing the mechanics of the program but they are not overly cumbersome and certainly produce a net benefit for all.
In the event of a credit default, the MSP is held harmless. Any remedies available to the lessor are from the end user.
Most MSP's prefer Fair Market Value (FMV) leases that do not transfer title in the equipment. This keeps payments down and creates a predictable refresh cycle for the MSP. The only obligation that the end user has is for the monthly payments, they are not obligated to purchase the equipent at any time. It's not uncommon for the sum of the payments made over course of the lease to be less than the initial cash sale price.
Early terminations only require the return of the equipment (FMV leases) and remittance of the remaining receivable. Upgrades simply consist of adding the present value of the remaining lease receivable to the net cost of the new equipment (in many cases the MSP gives a trade in credit to the lessor/owner of the equipment which defrays the cost of the new).
$1 buy outs are loans and should be capitalized on the books of the lessee. FMV leases are generally treated as an operating expense and are kept off balance sheet.
I hope this helps. Again the questions were informed and very relevant. It was my pleasure responding.
nota bene: the comment above is from Frank Latourell of Varilease
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