For many resellers leasing and everything associated with it is a concept as difficult to comprehend as Shakespeare, "To Lease or Not to Lease?."  For others, leasing is already a natural part of their business.  I sat down with four experienced healthcare leasing experts in an effort to dissect the leasing industry and discover how resellers can use leasing to make more money and have more opportunities for their business.

Why lease?:  If a doctor is only going to purchase $2000 in product and services from you, leasing is not necessarily something you would offer.  It is much faster to run the $2000 on a credit card and close the deal.  However, having a relationship with a leasing company opens up the door to do much larger sales.  Wouldn’t you rather charge that same client $20,000.00? Of course! Then think in terms of selling a much better system, with more services included, based upon the idea of a small monthly payment.

Most leasing companies will allow you to bundle training, support, upgrades, hardware, and networking services within the lease. Everything the client needs in one affordable monthly payment. Additionally, many leasing companies will advance you ½ or even the full amount of the lease prior to delivery and installation of the system. This upfront money can be used to purchase all of the software and hardware your client will need, at no cost to you. Leveraging the leasing companies’ dollars can greatly improve your cash flow and your profitability.

Pat Kistler, who has 20 years of leasing industry experience helping resellers, told me that the terms used to describe a lease transaction are very straightforward and easy to understand. “Leasing is simply 100% financing. The customer is given a 'lease-to-purchase plan' which has a $1 buyout at the end of the lease term. Purchasing the system can be easily justified with an affordable monthly lease payment”. He added: “Leasing is not a Rental Contract – there is no 'Get Out of Jail Free Card' if the customer decides they do not like the system. It’s not a free trial.”

Leasing vs Cash:  A new start-up medical practice generally has a limited cash flow at first.  Perhaps the practice has $20,000 in the bank after securing their new facility.  Taking even half of their cash reserves can put the practice at risk and make the first few months of meeting payroll, utilities, and other expenses very complicated. 

Leasing turns a medical practice's new software and hardware into another employee for the business.  That employee gets a monthly paycheck as well (i.e. the small monthly lease payment), and that $20,000 gets to stay in the bank to help protect the practice as it grows.

Leasing vs Bank Loan:  Leasing is similar to a bank loan, but with some significant differences.  Generally, banks don't like to finance hardware and software, and will almost never do a 'software-only' loan.  Lisa Hartley, a marketing executive at FirstLease, told me, "When you lease, the asset being financed is the only thing used as collateral, while banks may use other assets to secure the loan, such as a lien on a home. Also, leasing generally requires no down payment, while loans usually do.  Additionally, lease payments can be tailored to match revenue generation and do not change with interest rates."

How does leasing work?:  "Have you seen how Ford, General Motors, Caterpillar and all the major computer retailers sell their products now? Through the ease and availability of 100% financing.

'That Ford Expedition you’re looking at is a very nice vehicle, but for only $125.00 more per month we could get you into a Lincoln Navigator.' Or, 'with leather it’s only $35.00 more per month.' Try applying these examples, which happen every day in selling automobiles, to your advantage in selling larger systems, with more components and at greater profit margins.

It’s not the cash price you want the customer focused on. It’s the affordability of the monthly payment (Pat Kistler)."

What to watch out for:  Just like all industries, there are good companies and bad companies.  Some leasing companies can take advantage of you or your client.  There are a number of things that you can look for in choosing a lease or a leasing company.  Craig Danko, of the American Financial Network, said, "In terms of things to watch out for, one of the key things is near lease termination.  All companies need a heads up maybe 60 - 90 days in advance as to what the client's plans are with the equipment (i.e. buy it out, upgrade, return if that is an option, etc) however, some companies in their fine print get cute with that and demand a 6 month notice in writing via certified mail.   Obviously, most clients forget this near the end of the lease, and end up paying extra months or even a whole one year renewal!" 

Barry Reitman, the President of Keystone Leasing, summed it up nicely, "There are two important rules of leasing. Rule 1: It’s the fine print that will get you. Rule 2: It’s all fine print. AND If a promise is not in the contract, it is not in the deal."  He went on to list the following examples:

1. Example: The client asks if there is a “pre-payment penalty.” The leasing sales rep says, “No.” The contract says that it is a non-cancelable forty-eight month lease term. (A good leasing company will allow for early termination by discounting the future payments, and will put it in writing.)

2. Example: The client asks what happens at the end of the lease. The leasing rep says, “You can buy the equipment/software for ten percent of the original price.” The contract may say that the purchase option is for the “fair market value of the equipment.” (“Fair market value” is usually determined by the party with the most expensive attorney, not by the actual value or by a verbal statement years earlier by a sales rep.)

3. Example: Again, the leasing rep says that the purchase option is ten percent of the original cost, and in this case, he even points to that fact clearly printed in large type on the front of the lease contract. He does not point out the fine print that says “… the lessee (your client) must notify the lessor of his intention to exercise the purchase option no less than 120 days before the end of the original term or the lease is automatically renewed for a full additional year – at the end of which it may be renewed again! In the type of transactions that your clients are doing, such “evergreen clauses” are always the sign of an unethical leasing company.

4. Example: An exaggerated claim of a very low interest rate. Unfortunately, “interest rate” is never spelled out in an equipment lease. Too many leasing sales reps use this fact to boldly lie about the actual effective rate. (A good lessor will tell you exactly what the payment, advance payment, fees, and purchase option are, and then encourage you to comparison shop – based on what is in the contract.)

Choosing a Leasing Company:  Many reputable leasing companies are available to you online.  For example, American Express, Wells Fargo, and CitiBank are all billion dollar, automated service firms.  The decision to work with a small leasing company or a large leasing company is a question of opportunity and relationships.  There are a number of good client's that these billion-dollar leasing companies won't touch, especially lessees where there is a minor credit issue. 

Pat Kistler said it best.  "Most Resellers like to establish a good rapport with their leasing company, which can be invaluable in working closely with your clients. Typically, smaller lease company firms fund less than $5 million dollars per month, thus assuring that your contract is important to them. Further, whenever the client does not get automatically credit approved, the best leasing representatives can often turnaround a 'credit decline' into a 'credit approval'. By working with the client to obtain additional financial information or by structuring additional deposit money as a down payment, a motivated lease company can help justify a credit approval. But have no doubt that even the best leasing representatives cannot overturn customers who have had prior bankruptcies or a horrible payback history on their personal credit bureau report."

Barry Reitman informed me that, "When you refer your client to a leasing company, your sale and your reputation are both on the line. If you have not had prior experiences with a lessor, ask every question you would ask if you were going to be the customer. If the answers sound too slick to you, they will sound that way to your client. Will the leasing rep agree to speak with the client’s accountant? Will he answer questions fully? Does he have a long record of dealing with the medical community? When will he pay you for the installation of your client’s system."

Making more money:    Because resellers are encouraged to bundle ALL of the system costs, including installation, support, and training, into one sales price, they get the benefit of being paid in one lump sum, up-front, while the customer receives one small fixed monthly payment over time. This saves a reseller from billing for add-on services and upgrades as they go, which can be frustrating to both the reseller and the customer.

Finally, as Pat Kistler reminded me at the close of our last discussion, "most leasing companies allow Resellers to add-on referral fee 'points' to their base lease payment. This can be a very valuable 1%, 2% or even 5% of the sales order as an additional profit margin for you. It’s easy to make additional referral fee money – simply know the exact monthly lease payment your leasing company charges and 'round up' a few dollars per month when quoting the payments to the client. Once you get the hang of it, a $335.00 payment, rounded up to 'does about $350.00 per month sound right?' produces $500.00 extra dollars in your pocket on a $10,000.00 system sale."

Note:  Some lessors, like Reitman, would caution that "add-on referral fees" can be problematic for several reasons. First, it may raise ethical concerns. Second, if your client and the lessor ever litigate, the fact that you increased the client's payment in return for a kick-back will be disclosed in the legal proceedings. Finally, many resellers believe that they have earned the right to simply price their product with the right margin. They want to avoid the problems that arise when an inflated effective lease rate pushes the client to shop for a competitive figure. Most clients are sophisticated enough to question why you "somehow" have introduced them to a leasing company with a payment that is higher than the payment quotes they readily find on-line. That "easy" $500 can easily cost you a relationship -- and a sale.

To Lease or Not?:  In order to truly break into larger system sales, maximize profitability, and improve customer satisfaction, its clear that developing a strong relationship with a leasing company is important for any medical software reseller.  Customer leasing is a simple part of operating a business that has real growth potential. However, choosing the right leasing company -- one that is fair and honest -- is an important part of ensuring that your clients are cared for and that you've provided a win-win situation for everyone.

Should you have more questions on leasing, feel free to contact the industry experts at the bottom of the article.

 -- Kevin Burdick,               
InvestMedLLC.com       

With special thanks to the following industry experts:

October 2004, TOP STORY:  The Birth of a Salesman

August 2004, TOP STORY:  Eggs in Two Baskets - A Resellers Guide to Having a Back-Up Plan