Leasing: Creating A Win-Win Situation For VARs And Their Customers

Leasing computer equipment created a win-win situation for two Topeka, KS companies. Leasing sales have jumped 50% from last year for VAR Dynamic Computer Solutions, and its customer. Personalized Brokerage Services Inc. (PBS) has seen its business rise significantly due to access to top-line computer equipment.

By using a leasing company, VARs can make a quick profit return and establish ongoing sales of future products without carrying any of the financial burdens of inventory. Leasing has increased sales at Dynamic Computer Solutions, an employee-owned computer systems integration company with sales of $20 million. Dynamic Computer Solutions has been in business for 4 years, and employs 170 people at seven sites in Kansas and Missouri.

"We sell a customer a system and then help finance it through our leasing company, Copelco Capital," explains Mitch Miller. He is Dynamic Computer Solutions' vice president of enterprise networking. The leasing company works just like a bank. It provides financing for equipment purchases for corporations, schools and government agencies. Copelco, a 25-year-old company with $1.5 billion in assets, provides leasing and financing programs in a variety of vertical markets including vendors of office and computer equipment.

Leasing Puts Equipment Within Reach
The process is simple. Dynamic Computer meets with a potential customer and discusses computer requirements. The VAR and customer select products. Assume, for example, that the system costs $100,000, which is out of the customer's price range. Dynamic Computer's sale would be lost. But with leasing, a payment schedule can be created for up to 36 months. Now, after interest is figured in, a $100,000 expenditure is turned into $3,600 a month. The customer also has the option at the end of the lease to trade in the old equipment for new equipment, purchase the value of the old equipment at market value or to turn in the equipment and walk away from the deal.

The VAR helps the purchaser connect with Copelco or another leasing company. If the loan is approved, Copelco gives the VAR a check for the full $100,000. The customer sends the monthly payment to the leasing company, just like borrowing money from a bank.

Another benefit for VARs, says Miller, is that credit approval or denial is much faster. Copelco has an internal system for checking credit, eliminating the need for a third party. "In 24 hours I need to know if a customer is credit-worthy or not," he says. "It takes the weight off customers' shoulders if they know if they have been approved for the lease without doing as much paperwork."

A 50% Increase In Leasing Sales
Miller estimates 30% to 35% of his current business is through leasing – up 50% from last year. "It's growing because of the obsolescence of computer equipment," says Miller. PC models and hard drives need to be upgraded to keep up with new software. At one time, people bought computers like they bought copiers. They used the machines for 10 to 15 years and would set them up and depreciate them as an asset in the company. Now, through leasing, companies create a monthly payment situation where every two or three years they can ask us to replace machines and bring in the latest models." VARs like Miller also know the date when a lease is up. "I can produce more business," he explains. "I can talk to a customer about new equipment. Money is already built into the customer's budget for the lease every month. Leasing gives me the opportunity to do constant upgrades and offer them new products and greater value."

Customers Also Watch Profits Grow
PBS Inc., a 12-year-old annuity-specialized brokerage agency, chose to lease computer equipment from Dynamic Computer Solutions. PBS represents 20 insurance companies across the United States, and was using one PC as a central database three years ago to keep track of information on 50,000 customers. This included names, addresses and phone numbers for each person, along with extensive tracking and marketing information. The company's computers were networked, but it was a slow, outdated system..

"Our search for a new system started when we ran out of room on our central database and decided to network our computers," says Steve Allen, PBS' director of marketing. This gave us the capability to expand the system as the company grew. We have more than doubled our employees since then. And because of that, we've had to more than double our computer system capabilities." Projected premium annuity income, the standard used by all insurance companies and brokerage services, has climbed from $186 million in 1996 to a projected $250 million this year.

"We purchase by the old law," explains Allen. "Anything that appreciates, we buy. Anything that depreciates, we lease. We want to gain the money on appreciation. With leasing, all we are doing is paying for the depreciation of the equipment plus interest."

"We have leased a total of over $100,000 worth of computer equipment to PBS," says Miller. "The company has about 25 employees, so to produce that kind of money at one time, would have been a very large financial investment. But, a monthly payment string of $3,600 is something the brokerage service could afford.

"They had old equipment and were trying to keep it running well beyond its time. When we sat down with the company and figured out a plan, the ability to replace equipment after 36 months saved the brokerage service from spending money maintaining old equipment. It lets Personalized Brokerage Services handle the maintenance of its systems in a much smoother fashion instead." Technical support is offered through Dynamic Computer Solutions, and equipment can be traded in before a maintenance problem develops.

With Copelco, PBS leased a computer-driven printer during its last negotiation. "We print a lot of information," says Allen. "We used to go outside to a printing vendor for most of our work. Now, we print directly in-house in one-third of the processing time it used to take. We've saved 60% on printing costs."

Forming A Longstanding Relationship
"Customers understand the leasing program," says Miller. "They know that having to buy new computers every three to five years has a negative effect on their budget. It's easier for customers to create a monthly payment amount into their budget. And through leasing, companies can expense the monthly lease payment as equipment rental charges. When a company makes a major purchase, an asset account must be created, which can take five to seven years to clear off a company's financial books. Leasing also lets a company keep its credit line available to buy other equipment and inventory."

The leasing company also becomes another sales tool for VARs. "We have a relationship with Copelco where the company lets us know if there is someone needing to add new equipment in our territory," says Miller. "It gives us the opportunity to obtain some business we didn't know about." Copelco also lets Dynamic Computer Solutions know if a current customer is asking about the market value for its equipment. Many times, according to Miller, that means the company is ready for an upgrade or could be considering a competitor. It gives Miller another chance to get back in the sales game.