Choosing the right supplier for vehicle funding has become an increasingly complex decision, with new products and services coming to market.
Over the past 20 years, an increasing number of vehicles have been acquired through various methods of financing as companies look to free up cash, remove residual risks and benefit from competitive interest rates.
Depending on the package you choose, vehicle financing can, in the long term, work out more efficient and flexible, as well offering less risk, than the traditional method of buying outright. A pay monthly arrangement fits in with modern business culture and often other services may be included such as service, maintenance and repair (SMR) contracts or the provision of tyres.
For commercial fleets, there are around five main types of vehicle financing but the main divide is whether you eventually would like to take ownership and have the vehicle on the company’s balance sheet, or if you’re happy renting and not having the vehicle show as an asset on the balance sheet.
A fundamental consideration is to ensure your potential supplier is going to be in it for the long term. There have been quite a number of companies entering and leaving the market over the past decade, and you need a finance partner that is backed by credible investors.
Establishing a business relationship, and being able to “put a face to the name” is also important, especially as fleet funding requirements can reach into the millions.
So you tend to find that the more established finance and rental companies, such as Close Brothers, Ryder and Lex Autolease, tend to have a dedicated regional manager to provide the business relationship that major fleets require and who can assist with many of the funding requirements, such as establishing credit lines.
For a lot of fleet operators, particularly own-account operators involved in warehousing and logistics where there are other assets involved (forklift trucks, processing equipment, hoists), one of the key factors in deciding which funder to choose is their ability to finance other equipment on the company’s books and to create a one-stop shop, which cuts down on admin and time.
Another important consideration, according to Alphabet, is the quality of the funder’s supplier network, especially when it comes to converters.
The ability to manage complex conversion needs within an approved network is vital to ensure a high quality service which delivers the right specification on time.
“It’s important to match commercial vehicle funding to your company’s operational needs, depending on the nature of the your business,” says Alphabet.
Historically, high interest rates might have put off some fleets but, due to today’s competitive market, most suppliers offer similar low rates of interest. However, what can set the funders apart is the credit limit and funding criteria.
This last issue has led to a rise in the number of fleets turning to rental companies. Salford Van Hire offers contract hire and long-term rentals on vans and trucks, and has witnessed record growth over recent years with around 1,500 vans and 3,500 trucks now on its books.
“A lot of operators don’t want to be tied down anymore”, said Nick Evers, operations director at Salford Van Hire. “We’ve seen a surge in demand for our long-term spot hire, whereby it’s a fixed rate without the commitment of contract hire.”
This sentiment is shared by Paul Brown, group fleet manager at Enserve Group, which operates 550 vans and 10 trucks.
“Our main concern is flexibility, as there’s not much difference in pricing nowadays,” he says.
“We’re not like the Royal Mail, who can actively predict the work load, type of work and amount of mileage over the next five years with relative certainty. We need a flexible finance partner. We had a number of contract hire deals a few years ago, and things worked well until the job changed and we wanted to swap vehicles, and that’s when things got tricky.
“Now we’re with Northgate on a flexi-rental agreement, and we’re able to send up to 20% of the fleet back early if a certain contract ends. This has saved us a great deal of effort and money.”
For those preferring the traditional method of owning outright at the end of the agreement, one of the more popular choices is going direct to the manufacturers via their dealer network.
“You tend to find that a lot of the traditional and established operators prefer manufacturer finance,” says Lindsay Hyde, director for commercial vehicle sales at Mercedes-Benz Financial Services. “That reflects in our figures, as hire purchase is still our most popular package.”