Contract hire reigns as the most popular funding method for fleets, but some of the less well-known alternatives might actually be better suited to a particular business’s needs.
Statistics from the British Vehicle Rental and Leasing Association (BVRLA) show that about 60% of fleets fund vehicles through contract hire, with up to 20% opting for outright purchase, the second most popular funding option.
Although some of the lesser-known schemes make up a relatively small proportion of choices, they can still be a viable option depending on a company’s individual circumstances.
We take a look at the funding choices available.
POPULAR WITH: Large fleets
THIS is a safe, low-risk option as fixed monthly payments over an agreed term mean rates are not affected by changes in the used car market. The rate paid to the leasing company is set at the start of the deal and maintenance can be factored into the cost.
Under contract hire, 50% of the VAT paid for financing the car can be reclaimed if there is some private use, 100% if it is solely business use. End of contract charges can mount up if agreed mileages are exceeded or vehicles returned in poor condition.
To reduce charges, ask for vehicles with higher mileages to be offset against those with lower mileages – known as ‘pooling mileage’.
POPULAR WITH: Fleets with the expertise to forecast residual values
VEHICLES are leased for an agreed period, after which fleets can sell them, keep them on the fleet and pay a reduced rental or hand them back to the leasing firm. Finance lease gives more control than contract hire.
Basically, the legal ownership lies with the lessor, but economic ownership – and risk – lies with the fleet. It allows the fleet manager to decide the best time for disposal. But there is more risk and in most cases fleets will be required to cover maintenance costs. This method may also require more knowledge as managers will have to predict the best time to offload vehicles.
POPULAR WITH: Companies with high staff turnover
IDEAL for fleets with employees on short contracts, mini-lease is basically a long-term rental vehicle leased for six months to a year.
Schemes are flexible, often have maintenance included and are less expensive than daily rental.
There are plenty of options on the market but although they are cheaper than rental, they can be more expensive than schemes such as contract hire. Mini-leased vehicles need to be properly managed, in a similar way to rental vehicles and managers should check exactly what is covered in the contract – such as breakdown cover and maintenance.
POPULAR WITH: Hands-on fleet managers
AS companies are effectively the ‘owners’ of the vehicles greater savings can be had if managed properly.
Low maintenance costs coupled with a high price on disposal can save costs for the company. Outright purchase also provides greater flexibility in terms of replacement cycles for vehicles. On the downside, however, the company pays if residual values fall.
Companies will also need to justify using company funds for purchasing assets that depreciate. Vehicles included on the company’s balance sheet as a depreciating asset can affect future financing needs.
POPULAR WITH: Small to medium-size fleets
A DEPOSIT is followed by monthly instalments over an agreed period of usually between one and four years. At the end of the term, a payment can be made for the outstanding sum or the car can be handed back to the funding company. All payments towards the car are VAT exempt, as contract purchase is classed as a purchase plan.
Only about 5% of fleets use this method and those opting for it must be aware that the condition of the vehicle can affect its price at the end of the contract.
Sale and leaseback
POPULAR WITH: Companies wanting a cash injection
IF a company needs to generate cash or take vehicles off the balance sheet it can sell vehicles to a leasing company and then lease them back under a finance agreement.
This gives fleets more control and as maintenance can be added into the contract, budgeting is made simpler. Control of the fleet will be effectively handed over to the leasing company so management procedures such as mileage allowances or wear and tear polices may have to be amended.
Employee car ownership
POPULAR WITH: Fleets wanting to free up cash
OFFERING an ECO scheme shifts vehicle ownership from the employer to the driver. ECOs are managed by the funding firm as if the employee was in a company car but the employer pays for business miles based on the tax and National Insurance-free Approved Mileage Allowance Rates.
The scheme gives staff more choice and enables employers to save on National Insurance Contributions tax. ECO schemes can be difficult to manage and managers must ensure vehicles are properly serviced and fit for use, otherwise they could fall short of health and safety regulations.
All-employee car ownership plans (ACOPs)
POPULAR WITH: Fleets wanting to offer an additional employee benefit
ACOPS (more commonly known as ‘affinity schemes’) can be a good way of offering vehicles to employees who are not entitled to a company car. ACOPS offer employees a range of options from inexpensive finance rates to vehicles at preferential rates agreed with the employer.
Some leasing companies also offer ex-fleet models and there are no tax penalties. There will be some administration to set up a scheme if done in-house.
POPULAR WITH: Small fleets
FLEETS pay a large deposit followed by regular monthly instalments. It is a popular choice for small fleets as it offers a flexible alternative for those that want to avoid mileage restrictions and damage charges at the end of contract. There are residual value risks as vehicles are effectively owned by the fleet, which means it is the fleet’s responsibility to dispose of them.