Fleet Funding | Top 10 tips
There are a number of different options for fleet funding including cash reserves, bank loans, finance and operating leases. Which one is best will depend on the individual circumstances of your organisation.
We take a look at the steps you should take to make sure you have the best solution in place for your business.
1. Regularly review your vehicle funding and acquisition method
Vehicle funding and acquisition method should be reviewed on a regular basis.
Revise your calculations to reflect any changes in legislation, fiscal background and the overall strategy of the business. This will help ensure you continue to use the most cost and tax efficient funding method.
2. Use a whole life cost methodology
Whole life cost (WLC) or total cost of ownership (TCO) methodology enables you to understand the actual cost of running a vehicle over its life. Elements to include in the WLC calculations should include funding cost, maintenance, tyres, glass, breakdown cover, fuel and insurance.
This can result in significant cost savings, wider vehicle choices and lower emissions in comparison with looking at purchase price, lease costs and disposal costs alone.
3. Blended Funding?
In many cases a mix or ‘blend’ of different funding methods rather than one method only will be the most cost effective approach.
If you want to go down the blended funding route your supplier should deliver blended quoting online and in real time to make it operationally scalable.
4. Fleet operating model
Some funding products can be bundled with associated maintenance or fleet management packages. It is important these services are reflected in the funding decision to reflect any associated running costs or personnel infrastructure which may be required to run the operations.
5. Cash flow
For purchases there is a big cash outlay at the beginning of the vehicle life. Leasing provides significantly more flexibility in their payment terms which can be adjusted to suit financial circumstances. Some government bodies for example pay annually in advance for leases. This has the effect of reducing the funding cost over the course of the lease but still keeps the risk on the residual value with the lessor.
6. Review the tax position
The correct funding method must be the right fit for your company and you need to take into account factors including VAT, corporation tax and writing down allowances. These variables should also be forecast where future regulations have been publicised.
7. Emissions caps and capital allowances
Consider capping emissions to ensure maximum use of any allowances which are available. Emissions caps should be regularly reviewed in line with the reductions in emissions delivered by vehicle manufacturers.
8. Access to credit
The creditworthiness of your organisation will have a major impact on the selection of funding type. It will also impact on how your may look to source the vehicles. Where credit is a potential issue it may be better to spread funding risk across a number of funders as opposed to focusing on a single provider. There may be ways to secure access to credit from your provider where this has previously been an issue, for example by adopting an upfront payment profile.
9. Ownership considerations
Some companies prefer to retain ownership of vehicles and utilise an outright purchase funding method. Others prefer to leave this ownership with the funder as well as the residual value risk. Either method could utilise a fleet management companies expertise and buying power for additional services.
10. Take into account the impact on employees
The impact on the value of the benefit and usability factors from an employee point of view is critical when considering funding methods. This will include considering any costs to employees, vehicle choices and administration.
If you would like some advice on your optimal fleet funding method then please