Admin Alert: Some Simple Ideas for Getting the Best System i Lease
April 14, 2010 Joe Hertvik
Buying a new Power i machine can be complicated. Not only do you have to correctly size everything for future growth, you also have to purchase the hardware, software, and maintenance at a reasonable price. And if your organization wants to lease its new machine, you may wind up scratching your head wondering just what those leasing numbers mean, or if your organization is being taken advantage of.
This issue, I’ll describe a way to approach a new lease, such that you can put yourself in a better bargaining position and better understand how the leasing company is pricing your monthly payments. I’ll examine a few simple leasing concepts that may provide a better outcome for your next lease, helping you get the best deal possible.
Separating Your Leasing Company from Your Business Partner
Depending on how your IBM Business Partner (BP) works, the BP may have a preferred leasing company that it works with to sell you an upgrade. The BP may also own a leasing company and want you to finance the new machine through them. After quoting new hardware, the BP may bring in his pre-approved leasing company, offering you a monthly leasing rate along with the BP’s best deal.
While one-stop shopping may appeal to some customers, I recommend separating your leasing company from your BP, and shopping the lease to other companies. If your lessor knows the deal is sewed up, you won’t get the best rate and your monthly payments could eat away at the discounts your BP provides. On a Power i machine, your company may wind up paying hundreds of thousands of dollars in payments over the lease term. It’s worth it to put in just as intensive an effort finding your leasing company and monthly payments as you did when specifying your hardware.
While it may work out that the BP is recommending the best leasing company, you will want to avoid a conflict of interest situation. In the worse case, the combined entity could unfairly inflate the machine’s purchase price, such that you overpay on the lease. It may not necessarily happen that way, but the potential for overcharging is there when the two entities work together. Separating your business partner from your leasing company takes these variables out of the mix.
Dragging Leasing Costs Out Into the Light
Which of these two leasing company quotes looks better to you?
A. The lease payments are $14,000 for 36 months. (Added on as a line at the bottom of your upgrade quote without any detail.)
B. The leasing payment consists of the following components:
Hopefully, you answered quote B. These numbers are totally fictitious, but you get the idea. Quote A came from a leasing company that isn’t working very hard for the customer’s business. They probably asked for the machine’s new configuration and then delivered that quote as a single number, betting that the customer wouldn’t ask what’s inside the figures. Quote B came from another vendor but this vendor provided the following detail, which is much more valuable.
Making Your Leasing Bids Look Like Quote B
Confusion breeds profit for many leasing companies, but with an itemized quote like quote B, you have knowledge that can be leveraged for better rates. And by getting competing quotes for new equipment, you can compare each quote and get the best deal possible.
The surest way to get broken down numbers is to just ask for them. After your BP provides your sell prices, give each company a spreadsheet similar to the one in this article and have them fill in the rates per thousand and monthly payment columns. Tell the competing companies you’re putting the lease out for bid. Competition is the great equalizer in reducing prices.
Another way that you can encourage lessors to provide B-type quotes is to ask for a competing quote from IBM Global Financing (IGF). IGF breaks their quotes down like B, and you not only get a useable quote, you can use it as leverage to get broken down quotes from other lessors (but just tell them you only want them to price the lease like IBM; don’t ever show IBM’s or any other company’s leasing quotes to other vendors as that is a breach of trust and could even produce a legal issue).
Three Simple Techniques for a Better Lease
Getting a better deal on leasing quotes isn’t magic; it’s knowledge. Follow these guidelines to get better leasing quotes from your vendors:
Your chances of reducing your lease rates will significantly improve if you follow these three guidelines and ask lots of questions. A bad deal can cost your organization tens of thousands of dollars (or more) so it’s worth approaching your lease with the same gusto that you approach your upgrade.