The Complete Guide to Fleet Leasing

Fillip Fleet
·
June 14, 2023
·
11
Minute Read

Your company needs a reliable vehicle fleet to operate efficiently. Perhaps your current fleet of  trucks for your plumbing business is getting a bit rusty, and you’re considering replacing them, or you’re looking to add more efficient vans to your delivery business for better fuel economy.

For such scenarios, leasing a fleet of vehicles is a popular choice among businesses looking to save capital. But is it the right way to go for your business? 

Let’s look at how and why this can be a better option than ownership, the various fleet lease options, and how you can find the right company to fulfill your logistics requirements.

What is Fleet Leasing?

Fleet vehicle leasing is when a company rents vehicles for its day-to-day operations.

This model covers all types of vehicles - from cars and vans to trucks and specialized equipment. It's flexible and tailored to individual business needs.

By leasing a vehicle fleet, companies can avoid the hassles of ownership, like significant financial commitments and management headaches.

Types of Fleet Leases

Understanding the types of fleet leases is essential for businesses to make informed decisions about their fleet strategy. So let's dig a little deeper.

Open-End Lease

An open-end lease, sometimes referred to as a finance lease or a Terminal Rent Adjustment Clause Lease (TRAC Lease), allows more flexibility. The lessee assumes the risk of the vehicle's residual value. 

This means the lessee makes up the difference if the vehicle is worth less than the predicted amount at the end of the lease. Conversely, the lessee benefits from the profit if it's worth more.

Imagine your business leases a truck under an open-end agreement and the truck depreciates more than expected due to high mileage. In that case, your business would cover the additional cost at the lease's end.

But on the bright side, if the truck retains its value well, you could end up paying less.

Closed-End Lease

In a closed-end lease, also known as a walk-away lease, your business isn't responsible for the vehicle's residual value. However, a closed-end lease typically lasts longer than a TRAC lease, often up to 3 years.

When the lease ends, you return the vehicle. If the vehicle has depreciated more than expected, it's the leasing company's problem, not yours. But remember, you have to ensure the vehicles don’t exceed the mileage or violate any other conditions set forth by the company.

Think of this like renting a holiday home. You pay to use it for a set period; when that time is up, you leave, hence the “walk-away lease” name. The value of the property after your stay isn't your concern.

Rent to Lease

Rent to lease is a more flexible option that allows businesses to rent a vehicle for a brief period before converting that rental into a longer-term lease. This could be ideal if you're unsure about the type of vehicle you need or if you're testing out new markets or routes.

Think of it as a trial version of software. You're granted access to all the features and functions for a limited time. After the trial, you're in a better position to decide whether to commit for the long haul. This way, the rent-to-lease model allows businesses to make informed, confident decisions about their long-term fleet needs.

Value Lease

A value lease is designed for used vehicles and is often cheaper than a new lease. Going with this option could be a smart move if your fleet usage doesn't demand brand-new vehicles.

It’s similar to buying second-hand furniture for a start-up office. It serves the purpose and keeps costs down while you're establishing your business.

Short-Term Leases

As the name suggests, short-term leases are for a shorter duration, often less than a year. They offer businesses the opportunity to fill temporary needs or manage peak periods without a long-term commitment.

Picture a seasonal business like a Christmas tree delivery service. A short-term lease for a delivery truck during the festive season would be the perfect solution.

Fleet Leasing Vs. Ownership

Choosing between fleet vehicle leasing and owning is a big decision that can impact a company's operations, finances, and long-term strategic plans. Let's unpack the key differences between options.

Cash Flow Implications

When you purchase vehicles, the initial cash outlay can be considerable. This could tie up significant capital - money that might be better spent on other aspects of your business.

On the other hand, leasing requires a much lower initial investment. You generally pay a small deposit followed by regular monthly payments. Think of it as a subscription service - like Netflix, but for vehicles. It's predictable and can be much easier to budget for. 

But what about the long-term picture? While leasing payments might seem smaller, they can add up over time. If you lease a vehicle for its entire lifespan, you might pay more than its purchase price. 

Yet, the opposite can be true for short-term or intermittent needs. For instance, if you run a seasonal business, a short-term lease could prove more cost-effective than buying a vehicle that sits idle for half the year. 

Lastly, there's the resale value to consider. When you own a vehicle, you can sell it once it's no longer needed, potentially recouping some of your investment. But is your business equipped to handle the sales process and market fluctuations?

In leasing, the responsibility for selling the vehicle at the end of the term rests with the lessor. It might seem like a missed opportunity for profit, but remember - it's also freedom from risk and hassle. 

Expensing Leased Fleet Vehicles

The approach to expensing vehicles varies significantly between owning and leasing. When you own vehicles, you depreciate them over time on your balance sheet. This is considered an expense, and you’ll have to worry about the reduced selling costs when you plan to cycle your vehicles in the future. 

Simultaneously, the initial purchase can lead to a significant expenditure affecting your company's financial profile, which can be a potential turn-off for investors.

A positive aspect of purchasing vehicles is that your company can enjoy tax depreciation on its owned fleet. As the years pass and your fleet loses its value, you’ll have to pay less tax return by writing off the depreciation as an expense.

Leasing, conversely, is typically considered an operating expense and can be fully deductible, depending on your tax jurisdiction. This, as well as a lowered upfront cost, makes your financials more attractive to investors. Remember that a leased vehicle isn't a depreciating asset on your books, which could lead to a cleaner balance sheet.

Vehicle Upgrade Cycle

Leasing gives companies an advantage when it comes to the vehicle upgrade cycle.

When a business owns its fleet, swapping older vehicles for newer models can be costly and complicated. But with leasing, upgrading to the latest models is often part of the agreement. 

You can have the latest models without the hassle and financial strain of selling off your old fleet and purchasing new vehicles.

Contract Terms

While leasing can offer numerous benefits, it also comes with certain restrictions. Leased vehicles typically have mileage limitations, and exceeding these can incur extra charges. Leasing contracts may also require regular maintenance check-ups to ensure the vehicle's in good condition.

Owning your vehicles provides freedom to use them as needed without these restrictions. However, it also puts all maintenance responsibilities and costs on your shoulders, as no third-party company manages the vehicles. In such a situation, you can highly benefit from hiring a fleet manager or a fleet management company.

If you don’t upkeep your owned vehicles regularly, they will depreciate much more quickly. Unmaintained vehicles will require frequent workshop visits, which will put unnecessary strain on the finances and impact the efficiency of your business.

The freedom of use must be balanced against the responsibilities of ownership.

Finding the Best Fleet Leasing Company

Do you plan on embarking on your fleet vehicle leasing journey? Then finding the perfect fleet leasing company is essential. Here's how to ensure your journey is smooth and profitable.

Figure Out Your Fleet Vehicle Needs

The first step is identifying your specific fleet needs. It's like building your shopping list before heading to the market. Some of the questions you should ask yourself are:

  • How many vehicles do you need?
  • What type of vehicles suits your operations best - Trucks? Sedans? Electric cars?
  • What mileage range do you anticipate for each vehicle?
  • What features are essential - GPS tracking, enhanced safety systems, or fuel efficiency?
  • Do you have a specific brand preference?
  • Are there special equipment or cargo requirements?

Finding and Evaluating Potential Fleet Leasing Companies

Next, it's time to find a fleet leasing company that can meet these needs. But it's not just about availability - it's about compatibility too.

Determining the Leasing Company's Long-Term Goals

Long-term compatibility is crucial. The company should ideally have a stable business outlook, with no immediate plans to change its business model dramatically.

It would help if you also ensured that the fleet leasing company is financially secure and capable of fulfilling its contractual obligations throughout the lease term. This can be determined by reviewing their financial statements and credit ratings or requesting references.

The longevity and resilience of a fleet leasing partnership can contribute significantly to your peace of mind.

Vehicle Needs Matching

Find out whether the leasing company meets all your fleet requirements that you’ve established. Of course, the vehicles you require must be available with the features you deem essential for your business.

Insurance Coverage

A thorough understanding of the company's insurance policy is imperative. You need to know the details - not only what it covers but also what it doesn't. 

Are there any exclusions you should be aware of? What additional insurance might you need to comply with the company’s policy?

Ideally, the company should provide a full suite of insurance. This might increase the monthly price of the leased vehicles, but it takes the headache of managing insurance off your shoulders.

Customer Support

A good commercial fleet leasing company values customer support. They should have multiple channels for communication and provide you with an account manager or a main point of contact. 

If an issue pops up with any of the vehicles, you need to have the means to contact the leasing company to resolve it with as little downtime as possible. Whether that’s a designated after-hours customer support number or a live chat window through their website - make sure the customer support can support your hours of operation. Remember that poor customer support can make a minor issue a major headache.

Testimonials of the Leasing Company

Reviews and testimonials can reveal insights that glossy brochures don't and can provide you with a clearer picture of the company’s quality of service.

Past clients' experiences can reveal service quality, responsiveness, and reliability to guide your decision-making process. It's important detective work that can save you future trouble.

Maintenance Services and Turnaround Times

Not all leasing companies include maintenance in their contracts. However, for those that do, it's essential to inquire about their maintenance services' efficiency.

You must know how long your vehicles may need for repairs or routine maintenance. Timely service ensures your fleet remains operational, minimizing downtime.

Compare Rates of Different Companies

Now it's time to weigh your options. Which company offers the best value for your unique needs? Remember - the cheapest option isn't always the best, especially if it falls short in areas that matter to you. So, weigh the pros and cons, and choose wisely.

Navigating the fleet vehicle leasing terrain might seem daunting, but with the right strategy and thorough research, you can find a fleet leasing company that fits your business perfectly.

Fleet Management for Leased Vehicles

Managing a fleet of leased vehicles is a multifaceted task. It's not just about vehicles; it also involves managing drivers and often hiring a dedicated fleet manager.

Vehicle Management

Vehicle management is your first line of duty. You've leased vehicles, sure. But what types are they? Sedans, vans, trucks, or a mix? Are they all the same make and model or varied?

Understanding the composition of your fleet is vital. This information impacts maintenance schedules, fuel consumption averages, and the overall lifecycle of each vehicle.

Remember, leased vehicles are a responsibility – taking care of them can save you costs in the long run.

Driver Management

Managing drivers is as vital as managing vehicles. Your drivers are a living, breathing part of your fleet. Monitoring their performance, habits on the road, and adherence to safety norms is crucial.

It's not just about safe driving but also about fuel efficiency and vehicle longevity. Implementing a driver scoring system could be invaluable. It incentivizes good behavior, improves safety, and enhances overall fleet efficiency.

Hiring a Fleet Manager

For larger fleets, the complexities grow exponentially. It is challenging to juggle everything. This is when hiring a fleet manager might be the game-changer. 

An experienced fleet manager, who understands fleet dynamics, is meticulous with details and is adept at managing people can effectively oversee the daily logistics, leaving you to focus on the bigger picture. Think of it as investing in peace of mind.

Should You Lease Your Fleet?

In the end, the decision falls on you. The financial benefits of fleet leasing are most businesses’  primary deciding factor. 

However, larger companies might benefit in the long run if they purchase a fleet — there won’t be any restrictions, and they can get a return on their investment by selling off older vehicles.

Evaluate your business requirements and weigh them against your finances and long-term goals. In most cases, one of the various types of fleet leasing will fit your needs and prove more beneficial than owning a fleet.

Fuel Your Fleet with Fillip

Whether you lease or buy your fleet, you need to fuel them up.

That's why we developed our digital fleet card. We wanted to make things quick and easy, so you can issue driver cards on the go and keep track of all purchases in real time, right from your phone.

Our card works at any gas station that accepts Visa. Fillip also finds you the best deal on fuel based on your location, helping you save on every tank.

We've also put a lot of thought into security with built-in fraud prevention and real-time alerts.

We know every business is unique, so we offer flexible funding options.

Check us out and let's make managing your fleet a breeze together!

 
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