Deciding On The Length Of Your Lease - International Paper

At this point, because they might owe $10,000 to $15,000 or more on their current copier, they are at
the mercy of their vendor when trying to upgrade. They are prepared to pay almost any price for the new
equipment in order to be let out of their lease on the obsolete model. In fact, the new lease is often so
confusing that the buyer has no clue as to what price is being paid for the new copier.
Many buyers have told me that the balance owed on the outdated model was being forgiven. But,
when I break down the new lease payment into it’s many possible components (new equipment, old
equipment, service and supplies, personal property tax, insurance, etc.) and then apply a reasonable
lease factor, I invariably find that the amount owed on the outdated copier has been added to the new
lease cost. Even if they technically do not add this cost, they accomplish the same thing by providing a
lower discount on the new copier and using a higher interest rate on the lease.
Summary
Copier technology is advancing faster now than at any time in the 34 years that I’ve been in this
industry. In the 1980s (prior to color copiers) it was common to expect to use a copier for seven to ten
years. The five-year lease period was very acceptable back then. After the equipment was paid off, most
companies could expect another two to five years of use without having to make a lease payment. That
has all changed with the growth in digital copiers, both in B&W and especially in color. And the
connectivity devices are changing even faster than the copiers.
So, what can you do? I believe you have to keep up with new technology if you want to stay in the
copying business. This does not mean that you have to buy every new innovation that comes along. That
job should be left to the pioneers who don’t mind losing money with some of the new and unproven
products. But, you can’t just sit on the sidelines with equipment that is outdated and has a cost structure
that is uncompetitive.
Fortunately, the new equipment tends to carry a lower cost to operate. This can often allow a
company to upgrade at little or no additional cost per copy. But, in order to be in a good position to
upgrade, you need to keep your lease terms at a reasonable length. Today, a reasonable length is
somewhere in the three to four year range. For B&W copiers, I think four years could be justified. For a
color copier, I would strongly urge you to sign no more than a three-year lease. As shown in Table 1, the
cost per copy savings is very little to stretch out a color copier lease to four or five years. I believe the
60-month lease is an outdated form of financing for copier equipment.
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