Selling a security installation in the conventional way has been compared with volunteering for an 84-day prison sentence because, according to industry statistics, that is how long, on average, you can expect to languish before getting paid. Yet, despite the unbearable stress this can put on cashflow as well as credit limits, it is still the most popular form of payment for all but the biggest installations.
Sadly, statistics are less clear on the number of installers going bust while waiting to be paid but, of those who are lucky enough still to be in business, most will say they could name at least one.
It ‘s no coincidence that security leasing first found favour among the major retailers in their boom years of the late eighties. Growth was so frenetic that fast access to capital became the only limiting factor. At the peak of this expansion, some cynics said the chains were “paying the builders straight out of the till” to get as many new branches open as quickly as possible.
Illogical use of cash
In such an environment, it seemed totally illogical for a group to own several thousand cameras and associated systems when the same cash would pay for a new store, so leasing was a very natural solution.
VCL launched a separate company – Video Rental Systems – devoted specifically to leasing. VRS sales director Nigel Garner said this option is now reaching a wider audience and any installers not offering the leasing option will already find themselves at a distinct trading disadvantage.
“Leasing is no longer the exclusive property of the high-value installations,” he said. “It has too many advantages to the end-user as well as the installer for it not to grow further. Benefits such as releasing capital and the option to upgrade or expand – not to mention of course the VAT zero-rating of leased goods – are every bit as relevant to the smallest business as they are to the biggest and customers are not being slow to realise this.” As end-users become more aware of the option and its advantages, it will not be long before they expect every installer to provide it as a matter of course, added VCL marketing manager Nick Bowden.
“There are some comparisons here with the growth of credit cards a generation ago. At first the facility was offered by a few businesses as a marketing point but as soon as the consumers saw the benefits it rapidly became a factor in the choice of where to buy.
“But then, in a frighteningly short time, it became such standard practice that any company not taking plastic was seen as a downright hindrance and had to do something about it as a matter of urgency.
“The parallels with security finance are clear and, while our industry is still at the very early stages of the analogy, I suspect it would be a foolish installer who believed the latter stages would not follow soon.” VCL was quick to recognise the potential for leasing. The company set up VRS eight years ago to connect the installer with a range of packages through international finance houses and offer facilities, such as training, to enable installers to make the most out of selling the concept.
Garner explains: “The on-site training courses run by VRS have proved to be a very popular add-on for clients of the leasing packages. Salespeople recognise naturally that if they have had no experience of finance then it only takes a little knowledge to help them to make the very most of selling leasing.
“They also know that one of the biggest causes of lost sales in our industry is where the customer finds the bottom line price too much to swallow. Leasing can not only remove this massive barrier instantly but can also enable the customer to consider higher value options.
“However, both these can only be maximised by proper sales training. Remember also that leasing enables the end user to upgrade or expand at some point in the future and here too the opportunities could be missed without training.” VRS offers on-site sales training to leasing customers, it can also arrange for a member of its staff to accompany the installer on site and help put the benefits of leasing directly to the end user.
Credit limit nightmare
Some other benefits to the installer are too obvious to need any training. One of the biggest and nastiest by-products of the 84-day payment gap, for example, is the havoc it can wreak on a company’s credit limit. Imagine the cost price of everything you installed in 12 weeks in big red letters against your business account, stretching your credit limit to destruction, not to mention hitting you hard for interest.
Then imagine growing the business as much as you can without ever having to borrow a penny. It is hardly surprising then that the VRS pledge to turn round invoices in five days is one of its most popular features.
Complete elimination of bad debt comes a close second however when it comes to assessing the benefits of leasing – the installer takes payment from the finance house, not the customer, so one or two ‘reluctant’ or ‘disappearing’ customers are no longer your problem.
The leasing route also offers considerable flexibility to the end user, thanks to a range of in-built facilities. For example, the end user can choose to defer payments for up to nine months – especially useful to institutions such as schools where the balancing act between one year’s budget and the next can be a vital element of accounting.
Palatable payments
VRS offers a ‘credit drawdown’ facility. Where a big installation is to be carried out over an extended period. Drawdown means it can be divided into sections and each leased separately. Thus the installer can begin to receive staged payments – without losing the volume terms earned by the project as a single entity. Another benefit with larger installations is that they can be cut up as a ‘split-deal’ where the entire job would exceed credit limits. Leases can also be arranged over any period from one year to seven.
Installers will also find that leasing can minimise the old problem of customers trading down because they find the top line price of an all-out purchase a bit overwhelming. The scenario is familiar to many; the customer pales at the sight of your quote for GB pound 6,000 and says: “Can we get it down to GB pound 4,000 if we leave a couple of cameras out?” With leasing however, a quote based on a much smaller monthly payment carries much less of the shock factor and proves all the more digestible to your customer. As a result the customer fits the system you recommended, not the one constrained by the capital budget.
When the lease has completed its natural term, installers have the option of taking over title to the equipment. From here they can either go on leasing to their client or simply hand the equipment over to them. Continuing to lease, even for a dramatically reduced fee, also leaves open the option for continuing.
But there is one major pitfall to avoid when passing end-of-lease equipment on to the client. If it is literally given away – at no charge whatsoever rather than a peppercorn fee – then the VAT zero-rated leasing agreement might just find itself redefined as hire-purchase and so could have very serious tax implications. Of course, it is a little more complicated than that but a word with an accountant first might save a lot of grief later.
Monthly crimefight payments
Contracts undertaken via VRS in recent times confirm the trend that the leasing route is finding favour with an ever-wider spectrum of end-users and installation sizes, said Nick Bowden.
“To the end-user, the logic is the same whatever size the company. It is simply this: you are paying for crime on a month by month basis so it makes perfect sense to pay in just the same way to combat it. This means that, allowing for a fairly unexceptional level of crime and an effectively designed installation, it could be paying for itself literally from day one.
“What could be more tempting than a sales message stating in absolute honesty that the installer need never pay a penny for the product!”
