Features and benefits of IT leasing
- Low initial outlay: Unlike direct purchases, IT leasing does not usually require a large initial outlay, which makes it easier for companies to access the latest technology without investing significant amounts of capital.
- Fixed fees: Companies pay a fixed periodic fee (monthly, quarterly, annually) for the use of technology equipment or solutions. This cost predictability facilitates financial and budgetary planning.
- Technological updating: Technology evolves very quickly and becomes obsolete in a short period of time. Leasing makes it possible to renew and update technological equipment more easily and frequently than if it had to be purchased, thus avoiding long-term investments.
- Tax benefits: In many tax systems, leasing fees are considered operating expenses, allowing companies to deduct them from their taxable income. This can offer tax advantages compared to depreciation of purchased assets and improve companies’ overall financial health.
- Cash flow preservation: By not having to invest large sums of money all at once, companies can preserve cash flow for other investments or operational needs.
- Integration of additional services: IT leasing contracts often include other services such as maintenance, technical support, and training. This can simplify management and reduce the hidden costs associated with equipment ownership.
- Balance sheet: In many accounting systems, leasing does not involve entering assets and corresponding liabilities on the balance sheet, which can have a positive impact on certain financial indicators, such as the debt ratio. Maintaining favorable financial ratios can be essential for relationships with investors, banks, and other stakeholders.
- End of contract: At the end of the leasing contract, companies usually have the option of returning the equipment, renewing the contract, or in some cases, purchasing the equipment for a low residual value.
From a financial perspective, IT leasing can be a valuable tool, especially for companies that want to keep up with the latest technological innovations without tying up substantial amounts of capital. However, before making a decision, it is essential that companies carefully evaluate their needs, analyze the total cost over contract term and compare leasing with other financing methods.
Trends in technology leasing
In terms of market trends, there has been a widespread movement among companies towards “as a service” models in many technology areas, for example, Software as a Service (SaaS), Infrastructure as a Service (IaaS) and Platform as a Service (PaaS). This shift reflects a preference for subscription- or leasing-based solutions over significant upfront investments.
In addition, many companies recognize that technology is not an asset they necessarily want to own, especially if it depreciates quickly or requires frequent upgrades. Instead, they see it as a tool to help them achieve their business objectives.
That said, not all companies or finance departments will prefer leasing. Some companies may have the capital available and will choose to invest in assets that can depreciate over time. Others may determine that, when doing the math, immediate purchase is more profitable in the long run.
In other words, although there is a clear trend towards “as a service” consumption models in the technology world, the choice between leasing and direct purchase will depend on each company’s circumstances. It is essential that finance departments conduct detailed analyses to determine which option is the most appropriate for their specific needs and objectives.
The IT department’s perspective
While the finance department takes the above reasons into account when considering options such as IT leasing, the priorities and approaches of the IT department may be different:
- Technological flexibility: The ability to upgrade and adapt to new technologies without being tied to obsolete hardware or software is crucial.
- Maintenance and support: Leasing contracts usually include maintenance and support services, which reduces the workload of the in-house IT team.
- Compatibility and standards: The IT department will want to ensure that any contracted solution is compatible with existing infrastructures and standards.
- Security: It is essential that leased equipment or software solutions meet the necessary security standards.
- Functionality and performance: While the finance department might focus on cost, the IT department will prioritize the functionality, features, and performance of the technology.
This is not about silos or what each department wants. Both must collaborate closely and communicate when considering decisions such as IT leasing to ensure that the company’s needs and objectives are met holistically.
The sustainability of leasing
IT leasing can offer advantages in terms of sustainability, but its ecological impact will also depend on how equipment and devices are managed at the end of their life cycle.
Here we highlight some of the reasons why leasing could be considered more sustainable than traditional purchasing:
- Upgrades and reuse: Leasing companies have an interest in refurbishing and reusing equipment, as they can lease it back or sell it on the secondary market. This can extend devices’ life cycle and reduce demand for new products.
- End-of-life management: Leasing companies usually have programs in place for the proper disposal of equipment at the end of its life cycle, either by recycling it or disposing of it in an environmentally friendly manner.
- Responsible consumption: Leasing can encourage companies and consumers to use equipment only for as long as they need it, rather than buying new devices impulsively.
- Green standards: Some leasing companies give priority to equipment that meets certain ecological or energy-efficiency standards, indirectly promoting sustainable production.
- Waste reduction: By extending the life cycle of equipment through reuse and refurbishment, the amount of e-waste that ends up in landfills is reduced.
However, leasing also has a “dark side”:
- Planned obsolescence: The desire for the latest technology may accelerate equipment turnover, which could increase equipment consumption even though it can be refurbished and reused.
- Reliance on management: The sustainable impact of leasing largely depends on how leasing companies manage end-of-life devices. If they do not do this properly, the ecological benefits are reduced.
In short, the advantages of IT leasing far outweigh the possible disadvantages. Therefore, it can be said that it has arrived in the business world to stay, thus changing the paradigm of ownership of technological equipment, as has happened with other popular assets such as cars.
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