Fleet Jargon Explained Part 5 Fleet Jargon Explained Part 5
Hire purchase - An early form of credit funding. Lender provides a fixed cost, fixed period loan (of money) to user, to support purchase. User is effectively the owner but will not have title to car until loan is paid off. Installments repay the capital and interest. If a residual value is built into the calculations, the scheme is usually called Contract or Lease Purchase.
Lease - A rental service to provide the "use" of a vehicle for an agreed monthly/ quarterly rental. In a lease there must never be any vehicle ownership by the lessee, hence an employee may be able to purchase a lease car at the end of its time on the fleet, but the company leasing the vehicle cannot.
Lease purchase - See hire purchase
Lessor - The owner of the asset, who sees ownership as an investment, not as a purpose. Implicitly needs to have financial and administrative strength.
Lessee - The user of the asset, who has unrestricted access to the asset as if he owned it, but who never obtains legal title.
Management -Often seriously underestimated, especially by smaller fleets. Effective management of a fleet of cars can save considerable sums of money, but itself costs money and a level of skilled resource. Can be delegated to external experts - fleet management or contract hire companies.
Mileage pooling - Can be used to avoid potentially punitive excess mileage costs. Mileage Pooling is available in many leasing scenarios, where vehicles returned to the lessor with mileage exceeding the contract mileage can be pooled with lower mileage vehicle returns, to offset those with high mileage.
Operating lease -Any lease which transfers most of the risks of ownership to the lessor. This is important under accounting conventions as it determines if the assets will appear on the lessee's balance sheet. Fixed-cost contract hire (with or without maintenance) is clearly an operating lease and hence off balance Sheet.
Outright Purchase - The simplest form of vehicle acquisition, where the company requiring the vehicles buys them from cash reserves or via a business overdraft facility. This provides the most flexibility for the company operationally, but also carries the highest administration levels and potentially the highest risk/ reward from residual value fluctuations.