Choose your funding carefully

• By the Head of Sales and Marketing at commercial vehicle funding specialist Artegy.

There are a number of major issues facing the commercial vehicle sector at present. In addition to the daily hassles of running the business, operators of van and truck fleets currently also have to deal with things like the Working Time Directive, the lack of new blood in the industry and how to manage asset risk.

The last of these is a concern for a lot of companies. Residual values are highly volatile, forcing operators to look closely at how to deal with the financial risk involved. In addition, the sheer expense of a commercial vehicle fleet (buying half a dozen HGVs or oil tankers can put a serious dent in any company’s balance sheet) is another issue to be managed.

As a result, there has been a lot of attention focused on outsourcing. Bringing in a specialist to handle some or all of the intricacies of fleet management is one option, but another – growing even more popular – is to use vehicles that are funded elsewhere.

But the decision-making process doesn’t end there. There are numerous different funding options available to commercial vehicle operators. The option that is best suited for any given company depends on its own financial position, the needs of its fleet and the operational demands of the business.

That is why it is vitally important that any company considering using externally funded vehicles analyse all the issues. That often means using the consultancy services of a commercial vehicle specialist so that they can determine exactly which funding method will work best. At the 2003 CV Show, our experts will be available to assist decision-makers that are contemplating changing how they finance their fleets.

For example, a company that wants to own its vehicles without the expense of buying them all at once might choose to acquire them on hire purchase. It obtains the trucks, makes regular payments to the partner providing the funding and takes ownership at the end of the arrangement. Such agreements also usually allow the company to claim Writing Down Allowances.

Alternatively, with the issue of residual values uppermost in mind an operator might decide on a finance lease. The vehicle is used throughout its useful working life, but at the end of the agreement either the rentals are reduced to a nominal level or it is sold on and the company benefits from a proportion of the sale proceeds. Not to mention that finance rentals are usually 100% allowable against tax.

If the balance sheet is a main concern (as it is for many companies looking to improve their gearing ratios), an operating lease can be the right choice. Not only is the asset off the balance sheet, but the rentals take the residual value into account and are thus lower than those found on a finance lease or hire purchase arrangement.

The most popular form of financing method, however, is contract hire. This is, in essence, an operating lease that includes a full package of service, maintenance and repair services. Its popularity stems from the combination of off balance sheet funding, worry-free upkeep of the asset and rentals allowable against tax.

These funding options all have pros and cons depending on the exact needs of the operator. That is why it can help to bring in a specialist. In addition, it is worth noting that some suppliers can also offer guidance on vehicle specification and build. When dealing with fleets of specialist commercial vehicles such as oil tankers and car transporters, tailoring the vehicle to its intended use is not just helpful – it is vital.