Vendor leasing, sales aid leasing, vendor financing and sales-aid finance are general terms that are used to describe a variety of leasing arrangements between businesses and their customers. It is most common in the technology industries (e.g photocopier leasing, computer leasing). The main advantage of vendor leasing is that the business can offer the customer a complete financial package to acquire or use the product. Some of the benefits to the supplier can be summarised as follows:

• Control the sales process
• Differentiate the products
• Increase cash flow
• Repeat business when customers' needs change or as technology changes
• Overcome price objections
• Increase the size of the sale

Also the use of operating leases ensures that the manufacturer retains control of the equipment when it comes off lease. This enables the manufacturer to ensure that the re-marketing of the equipment at the end of the lease term does not interfere with his own marketing of new products.

There are many different ways in which a business can provide leasing arrangements to its customers. For example, the business can act as the lessor itself or work in conjunction with a lease finance company. The accounting for these different types of third party arrangements can be complex.

Tax and accounting considerations

• In the instances where the manufacturer/dealer enters into an operating lease he should not recognise a selling profit when he leases the asset. This is because the risks and rewards associated with the ownership of the asset have not passed to the customer. He will need to capitalise the asset at its cost and depreciate it over its remaining economic life. In addition, he will recognise rentals on a straight-line basis over the period of the lease.
• Where a manufacturer/dealer enters into a finance lease with a customer, he may be able to recognise a normal selling profit. This is because the risks and rewards associated with the asset have passed to the customer. The gross earnings under the lease would be allocated over the lease term in the normal way.

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Last modified: 06/10/2005 23:34:28