Lease Accounting Software Best-of-Breed Approach
Single Vendor or Best-of-Breed for Lease Accounting Software and Lease Administration Software?
You need both a lease accounting and a lease administration application to effectively comply with the new lease accounting standards. Should you use one vendor for both lease accounting and lease administration or should you take a best-of-breed approach? Having these two applications tightly integrated ensures that the accounting team is always aware of any new leases, modifications to existing leases, and end-of-term plans for expiring leases. Taking a single vendor approach leaves you with only a few options to choose from as only a handful of software providers purport to offer both the lease accounting and lease administration functionality. Even selecting one vendor for lease administration of your various types of assets can be challenging. Most lease administration vendors specialize in either real estate or non-real estate (IT, fleet, equipment). in this article we will discuss the pros and cons of a single vendor and best-of-breed strategy for lease accounting and lease administration software.
The Single Vendor Approach
- Using a single software application allows you to tackle the overall, enterprise-wide leasing program from end-to-end. A more holistic and strategic approach to the problem may result in greater standardization of business processes and financial controls, as well as a higher ROI.
- Using a single software application reduces concerns about sharing data between two systems and eliminates the need for custom integration. Leveraging a single, shared data repository means that your Lease Accounting will always be based upon a complete inventory of all leases; accurate plans for renewal, termination, or buyout; and up-to-date pricing, locations, and costs centers.
- Using a single software application may cause you to sacrifice depth of functionality in certain asset types (real estate or equipment) or business functions (accounting, administration, sourcing). For example, vendors that historically focused on real estate administration may have less mature features in the areas of accounting and equipment leasing.
- Using a single software application also results in a single, enterprise-wide project with a broader scope and larger set of stakeholders. With the accounting organization under pressure to comply with new standards by 2019 (or 2021), the increased scope of the project may present additional risks.
- A best-of-breed approach may give you the advantage of greater functional depth in both lease accounting and lease administration as well as with specific asset types such as real estate, IT, fleet, or equipment. Expect that vendors historically focused on accounting might support more complex scenarios such as real estate sale-leaseback, tenant improvements, and CAM charges. Vendors that historically focused on equipment lease administration may have greater depth with lease versus buy analysis, competitive finance sourcing, and evergreen fee reporting.
- A best-of-breed approach enables you to de-couple the lease accounting project from your lease administration software project. The reduced inter-dependency will allow more flexibility in implementation, testing, and rollout schedules. However, it may or may not reduce the risks of lease accounting compliance issues due to fewer project interdependencies. If you do not properly automate your lease administration process you are likely to have bad data which will result in compliance challenges before or after the new standards take effect.
- A best-of-breed approach will require you to negotiate and manage multiple software vendors. You may not realize the maximum savings from licensing or subscription costs by splitting up your spend with different providers. You will likely be burdened with additional administrative overhead from having to project manage and coordinate between multiple vendors.
- A best-of-breed approach will require you to integrate your lease administration and lease accounting systems to share data. You will need to ensure that your lease accounting system is always kept up-to-date with new lease commencements, buyouts, and terminations. You will need to ensure that mid-term changes to leases such as tenant improvements, expansion clause executions, partial buyouts, and variable rent changes are synchronized between both systems. And you will closely monitor the new releases from each software vendor to ensure that custom integration scripts are not broken when either side changes their data model.
Not sure which option to choose? You are not alone. In truth, you do not need to make a strategy decision before you issue an RFP. You could elect to defer the software strategy decision until later in your journey. For example, you could issue an RFP to a wider group of vendors and then make a more educated decision on a best-of-breed versus single vendor approach.