Fleets paying for damage without seeing evidence that repairs are carried out, or their real cost, has raised concerns over pro-forma invoicing, reports Catherine Chetwynd.
Fleets could be overpaying rental companies for damage to hire vehicles by thousands of pounds because they are not monitoring and challenging pro-forma invoices. That’s the view of Siemens commodity manager Paul Tate after he
experienced issues with a former rental supplier.
Pro-forma invoicing is a document that states the terms and conditions of the hire. Although an informal request for payment, it ensures that any damage to a vehicle can be invoiced before the repair is carried out, which helps the rental company to better manage its cashflow, particularly in relation to the payment of VAT upon raising a full invoice.
Hire companies issue a pro-forma invoice for damage to a vehicle while it is still with the customer and then add the sum to their account before repairs are carried out.
“Clients don’t like it,” says fleet consultant Colin Tourick. “It’s a request to pay but they can’t put it through their books or reclaim the VAT until the proper invoice arrives.”
The practice has raised concern among fleets because there is no evidence that the repairs are either undertaken or that they cost as much as claimed.
Siemens, which spends more than £2 million a year on rental, with more than 2,000 rentals a month, believes fleets should reconsider whether they are happy to accept pro-forma damage invoicing.
The company accepts that if its drivers damage a hire vehicle, the rental firm is entitled to claim compensation to put right the damage caused.
However, if the hire company does not repair the damage at the time of the incident and continues to operate the vehicle until de-fleet (or a later date) Siemens believes the compensation should be pro-rata with any other damage which can be repaired at the same time in the vicinity.
So, if a door panel needs replacing, but the hire company decides that the vehicle does not need to be taken off the road and the same panel is subsequently damaged by a second hirer and requires the same action, the compensation liability to Siemens would be 50% of the original claim.
Tate believes that rental companies cannot claim twice for the same loss from two hirers (replacing the door in this example) and urges fleets to watch out for this practice.
“If the hire company wishes not to put right the damage and this damage contributes to a reduction in anticipated sale value, the hire company has a right to claim compensation for the reduction in sale value properly attributable to the damage caused by Siemens,” he says.
“Car rental companies are taking advantage of the fact that no one is questioning this practice.
“We challenged it and found that there was a percentage of vehicles that had been damaged again by another driver, but we were not being credited for that. This has highlighted a potential compliance issue for us: we are paying money without any documented evidence at the back end – they could not provide proof that these repairs were being done.”
Siemens was prepared to challenge the practice although experts claim that it is not illegal. As Tourick says: “From the rental company point of view, this is a perfectly legitimate approach to business.”
Nevertheless, Siemens and its supplier eventually came to an agreement on a double-digit reduction in pro-forma invoice charges.
Siemens has since switched to Enterprise Rent-a-Car, which doesn’t do pro-forma invoicing.
The process now is for all repairs outside the damage criteria to be charged at cost with full transparency on pricing. Siemens audits damage claims to verify that what is being billed for is being repaired and to check that it is not being over-invoiced for work not required.
The industry view
Director of policy and membership for BVRLA Jay Parmar is clear about members’ commitments.
“BVRLA members are required to provide justification for all charges raised and demonstrate a method of calculation for such charges,” he says.
“They are not required to repair the damage and may refer to a damage charge matrix.”
In fact whether the cost of repairing two lots of comparable damage caused in the same panel by drivers from different companies should be split 50:50 is a moot point. If the damage caused by the first driver would render necessary a respray, that would be chargeable to the renting company regardless of subsequent damage that needs the same treatment.
“I would expect the hire company to charge the first customer who damaged the panel and then not charge for any further damage by subsequent renters unless this necessitated further repairs above and beyond what had already been charged for,” says Jay Lovell, business development manager at Days Contract Hire.
“So if customer A scratches a door panel requiring a respray and customer B scratches the same panel before the first scratch has been repaired, I would expect customer A to be billed, with no charge to customer B. However, if customer B dents the panel, I would expect that customer B should be charged for the cost of repairing that dent.”
However, further confusion is caused by the views of a legal expert who claims the issue is about breaking the terms of a contract and not about the cost of repairing damage.
Ken McCall, managing director of Europcar UK Group, accepts that damage charging in the rental industry has long been a bone of contention between customers and providers.
“The customer does not want to pay over the odds for damage to a vehicle and the rental provider is exchanging an extremely valuable asset for very little capital in return, so needs to ensure it protects itself. That is why pro-forma damage invoices are put in place – to protect a valuable asset from abuse,” he says.
“However, car rental companies must also realise that they are service providers. As such, we must do everything we can to satisfy our customers. On issues such as damage charges, resolution can only be found by engaging in a dialogue and then acting upon the feedback – something Europcar is very passionate about,” says McCall.
One bank removed the problem by building a waiver for the first £400 of damage into its hire agreement.
“If it is over £400, it is generally a more major knock, in which case insurance companies are involved,” says its head of travel operations. This arrangement added just a few pence per vehicle, per day to the cost of the contract.
Kelly Fleet Services’ solution, meanwhile, is a service level agreement stating that its rental supplier will notify the company of any damage and send an estimate before Kelly agrees what it will pay.
“This is not always what is on the estimate,” says operations director Dermot Coughlan. “And if we know the vehicle is going for sale, the rental company is within its rights to charge for what they will lose in residual value, and sometimes we do a deal. It is usually possible to have a discussion and agree a compromise.”
Drivers must check vehicles on hand-over for damage from previous hires. Hertz shows customers a record of any existing damage at the start of the rental and the customer is invited to assess the vehicle to validate the inspection and to sign a pre-rental inspection form.
At the end of the rental, Hertz will inspect the vehicle again for further damage. The customer is again asked to validate the inspection and to sign a post-rental inspection form. Hertz charges the customer only for the cost of repairing damage, including, if applicable, any loss of use.
Other damage charge options
Northgate Vehicle Hire, meanwhile, operates a 28-day communication programme for all bodyshop repairs, which gives customers time to notify the hire company of any issues relating to the estimate and supporting documentation they have received in the damage pack the company sends them.
“Within this programme, we send customers three letters and make three phone calls, and on the 21st day we notify them that in the absence of any communication to the contrary, we will assume they have no issue with their damage pack and it is therefore our intention to convert the estimate to an invoice for the repair on day 28,” says UK damage and breakdown services manager Charles Starr.
“This structured approach allows us to resolve any questions or concerns our customers may have and ensures the process is fair and transparent.”
Starr says Northgate also ensures all damage estimates received from its supply chain are produced via an Audatex estimating platform. “This guarantees the correct repair methods are adopted and consistency of repair is achieved.”
The Lawyer's View
By James Baird, Gateley LLP
The terms and conditions of hire will often be drafted in a way that expresses the charges raised as an additional contractual payment of rental or otherwise under the hire agreement. In doing so, the hire company avoids the need to have the car repaired first and to pass the actual repair costs to the customer.
Using this drafting technique, the pro-forma invoice is, in fact, seeking approval from the customer to deduct an additional charge from their credit card. This represents either an additional rental payment or other contractual charge due to the reduced value of the vehicle in its damaged state.
Therefore, it is not always related to the repair costs or an estimation of repair charges.
For instance, the British Vehicle Rental and Leasing Association (BVRLA) standard terms and conditions state at clause 3 that the customer “will have to pay reasonable costs for bringing the vehicle back to the condition stated in the pre-rental inspection report”. Clause 7(a) states that the customer will be responsible for paying the rental and “any other charges”; clause 7(b) “any charge for loss or damage”; 7(e) “the reasonable costs of repairing any damage to the vehicle which was not noted at the start of the agreement”.
So a hire company using these terms in relation to damage to a vehicle could raise a pro-forma invoice for charges for damage to the vehicle. If these are paid, there would be no need to use clause 7(e) and seek the reasonable cost of repairing any damage.
Therefore, the customer might think they are refunding repair costs. However, what they’re actually paying are contractual charges because of damage to the vehicle but which are not the actual or indeed estimated repair costs themselves. As such, pro-forma invoicing is legal and fair. Payment will depend on the precise wording of the terms and conditions of the relevant hire agreement.