Jim Poggi
By Jim Poggi
The lease you can do
You KNOW you’re ready to step up to sell moderate complexity lab solutions. PAMA is putting emphasis on reducing cost per test and the larger systems typically have bigger test menus and lower cost per test. Your customers also know this and are asking you for advice. You learned about how to move your client to moderate complexity, selling proficiency testing and LIS systems from this column. And, you know these systems provide a five-year annuity stream of reagent, calibrator, control and consumable revenue for you.
You are ready to go, until the customer brings up financing. Did you think they were going to write you a check for that fancy $50,000 lab system? Maybe hand you a bucket of bitcoins? Nope. Leasing is the way most customers acquire higher cost lab equipment. This means you had better come up to speed on the basics of leasing quickly. As in all aspects of the lab sales process, don’t expect to become the expert. Know enough to pre-qualify the prospect and know when to contact the experts. So, what are the basics you need to know?
Understand whether leasing is a solution your customer wants to consider
This may sound obvious, but every customer does not want to lease with you, and some would not qualify. Other options include the customer implementing a line of credit or lease directly through their financial institution. This is not as common as it used to be, but is still a viable option. Two quick qualifying questions will get you the answer quickly and easily: Ask “How did you acquire this type of equipment in the past?” Or ask: “How do you prefer to acquire these types of assets?” Then, think about these other qualifying factors:
- Is this a new business?
- Is this business non-physician owned?
If the answers to those two questions are yes, then you should discuss with your leasing resource before getting too far down the road. New businesses are very difficult to get approved for a lease when they are not physician owned.
Selecting a leasing company
Many distribution companies make this easier for you by selecting leasing companies and easy to implement leasing solutions for you. If you are that fortunate, make sure to introduce yourself to the leasing representative, learn about their products, promotions and sales tools and understand how they typically help in the sales process. Will they visit customers with you or tie in by telecon? Will they explain the advantages of one type of lease over another? Can they handle poorer credit prospects? Know the landscape and how they can help. And, as always, USE their expertise in the sales process.
Selecting leasing options
One of the classic blunders in selling capital equipment is offering too many leasing options. DO NOT offer multiple year terms and a combination of fair market value and “buck out” leasing options. This confuses the customer and is a serious impediment to the close. The pros ask a couple of qualifying questions and bring forward THE BEST FIT OPTION and hold a backup option just in case. The prospect qualifying questions I like are:
- Do you believe you will want to keep the instrument after the lease is over? If so, a “buck out” lease offers the lowest guaranteed cost at the end of the lease. An “I don’t know” answer can suggest the *fair market value lease option below.
- Is the monthly cost of the lease more important than end of term acquisition options? If the answer is “yes”, then fair market value leases are probably a better fit for your client.
If in doubt, plan your financing strategy directly with your key lab instrument supplier and your leasing source. A five-year lease on most lab equipment over $10,000 or more is typical.
What can (should) you add in to the lease?
A comprehensive solution is usually the best choice. Recommend adding the LIS system, if needed, as well as service contract coverage for the life of the lease. If there are higher cost accessories such as water systems or UPS systems, check with your leasing source to make sure they will let you add them in and then offer a complete package as your first choice.
If your customer balks (which is somewhat unlikely), you can always take an accessory or two out of the lease and have the customer buy them up front. As far as service contracts go, be sure you have service coverage in place through the duration of the lease. Failure to do so ALWAYS results in costly unexpected service visits, angry customers and negotiations with all parties to calm the waters. It is a needless and avoidable waste of time.
Lastly, make sure that the Leasing Company you are working with can handle pass-thru service payments to the manufacturer. Many of them cannot, so it’s important to ask this question of your Leasing Source before getting too far down the road with pricing this type of opportunity. The leasing companies that can handle pass-thru service may have different lease rates than your originally intended source.
What to avoid
Stay out of the accounting and financial treatment of leases area. When your customer asks for the relative advantages for their practice to leasing options, encourage them to discuss their specific situation with their financial advisor. Your leasing source can provide some general guidelines in the differences between capital and operating leases, but the customer must be held accountable for selecting the right lease solution for their specific financial situation.
Implementing the lease paperwork
This is typically pretty straightforward. Most lenders require a credit check document and a leasing agreement. The cost of the capital equipment is paid directly to your company, by your leasing company, when the equipment is delivered and invoiced. The customer makes the monthly payments directly to the leasing company for the duration of the lease. Your company may require specific customer paperwork for reagent standing orders. Be sure to check before writing up a leasing proposal for the customer. Your manager or lab equipment specialist should have sufficient experience to assist you on the first deal or two. Ask your leasing source if they would be willing to attend the proposal delivery meeting, or at least tie in by phone. This assures expert help as needed.
Handling renewals
If you handle the first lease well, your customer will want to lease upgrades or additional lab equipment from you. This is proof of good work. You can’t start the renewal process too early. The most experienced account managers begin the process of discussing renewals as early as 18 months before the current lease ends. As always, proper planning leads to good results and the best solutions.
Leasing is the classic way for customers in our market to acquire the large scale and cost lab equipment they need to run an efficient and profitable lab. Armed with the information you now have, and with the advice of your lab equipment specialist, manager and leasing source, you should be ready to take the step into financing higher end lab equipment. You are ready to step up!
*Fair Market Value leases typically have documentation caveats that can impact the amount of money the customer will have to spend at end of term in order to send the equipment back to the leasing company. For example, the customer is required to pay for return shipping and they also have to pay someone to bring the equipment up to current manufacturer specs and re-saleable condition. They may also have to ensure that the manufacturer will re-certify the equipment for ongoing maintenance. These three factors could cost more in the long run that just doing the $1 Buyout lease in the first place. Lastly, the FMV lease does not qualify for any Section 179 benefits since the Leasing Company owns the equipment and not the customer. Always suggest to your customer that they read the fine print of the Lease Agreement so that there are no surprises later as end of term surprises could cost you a new sale.