Fleet Jargon Explained Part 2 Fleet Jargon Explained Part 2
Budgeting -The forward planning of operational costs over the forthcoming period (usually the financial year). One advantage of leasing is the fixed rental costs which help in making forward budgets. Multiply the monthly rentals for each car by the months held, and there's the forward cost. Make separate provision for costs the lease rentals do not cover (insurance; and fuel). Outright purchased fleets run via Whole Life Costs also provides a much simplified way of estimating forward budgets.
Balloon payments - This is the final payment due under most finance leases, to liquidate the whole debt. Usually set to match the expected residual value, so rentals reflect actual depreciation. Beware of balloons that are set too high: they may give low rentals, but will usually leave a financial hole to be filled by you, if the car doesn't make enough on disposal.
Capital - The "cost" or financial value of an asset, at time of purchase or after periodic depreciation reductions. Used by prospective lenders (including banks) as a measure of the strength or otherwise of a company's balance sheet. Capital expenditure usually is more tightly controlled than revenue spending - even though this is sometimes not justified.
Cash flow - Leasing can really help match the costs of providing cars, with the income they help to generate. By spreading the costs over the period of use, leasing and other credit schemes can provide considerable flexibility. Make a whole-cost calculation, to ensure that the effective rate of interest is not too high. Also remember that for fleets of more than about 50, the average cash flows of purchase can be similar to leasing. If a lease only stacks up by doing a DCF (discounted cash flow) analysis, you probably don't need it. A smooth cash flow (ie ?XX,XXX per month each month) is usually more desirable than no outlay for 11 months and then a massive cost outlay in a single month.
Contract - These are the legally binding documents relating to third party suppliers of vehicles and services. Read them carefully before signing, and check the small print. Consider situations such as early termination, excess mileage and dilapidation penalties when considering leasing contracts.
Contract hire - One of the most common types of lease. Usually totally fixed-cost: the lessor accepts responsibility for virtually all "normal" costs associated with providing the cars (depreciation, maintenance, funding, VED, administration), at his own risk. Details of cover vary widely, so check the agreement carefully. Contract hire is a service and therefore you do not own the cars. The quality and quantity of the backup and support are key areas, rather than price/ rental.