At LeaseAccelerator, we have worked with dozens of Fortune 500 companies over the past 10 years to help evaluate and manage their equipment leasing programs. We believe that equipment leasing is one of the most poorly managed financial processes at Fortune 500 companies. Big companies waste millions of dollars annually under-negotiating savings at the inception of a lease and over-paying monthly fees well beyond the end of a lease term.
The average Fortune 500 company has between $100M and $1B of equipment leases, which represents between 1000 and 10,000 assets. No other process with such high dollar values has so little governance, processes, and controls. If the CFO requested a report of all the identification and location of all equipment being leased across the business, it simply cannot be done (at least with any reasonable level of confidence). As you might expect, this is going to be a big problem when companies have to provide much more detailed accounting for leased equipment in their financial reports.
Three Root Causes – Ownership, Processes and Systems
Our experience working with Fortune 500 companies over the past five years has shown that:
- 50 percent of the Fortune 500 have no clear assignment of Ownership and Accountability for leasing to any one organization.
- 80 percent of the Fortune 500 have no formal Processes and Controls in place to manage equipment leases.
- 90 percent of the Fortune 500 do not have Systems and Databases in place to manage equipment leases.
Lack of Ownership
No one organization is responsible for the success and performance of the leasing program. Treasury helps stakeholders evaluate whether they should lease or buy equipment. Procurement gets involved to negotiate the deal up front. However, Treasury and Procurement lose visibility over leases after the equipment arrives. Accounting pays the invoices and tracks leases, but is dependent upon end-users to notify them if equipment is returned, exchanged, damaged, stolen, or lost. Groups like IT, Logistics, Operations, and Facilities Management typically control the equipment during the lease, but view themselves as users (not owners) of the corporate leasing program.
Lack of Systems
Some basic leasing data is stored in ERP applications, but it is normally at the contract or schedule level rather than the asset level for each individual piece of equipment. Procurement applications may have equipment lease data but it is often limited to information used to negotiate the deal. Asset management systems and contract management repositories may also have lease data, but there is no single database housing all the information available about a particular piece of leased equipment. Spreadsheets are the de facto repository for equipment leasing data. Often it is not one, but many different spreadsheets in many different departments that are used.
Lack of Processes
Most companies have not documented or consistently enforced processes and controls for leased equipment. Decisions about which equipment is purchased versus leased are inconsistent in different business units. In some companies, there may be 10,000 people authorized to lease equipment. Without controls in place, there is ample opportunity to make a lot of bad decisions. Another area of weakness is the “end of term.” Few companies track which equipment is due to come off lease in the near future and who/when to notify the leasing company about intentions to renew, return, or purchase the equipment. Even fewer companies track equipment during the term of a lease as it might move locations (impacting taxes), cost centers (impacting accounting), or ownership (impacting decision making).