Straining at the lease

Rental, leasing and finance company Syscap is making its offerings available through CRN's website as part of the latter's new Online Services. Ken Young reports on a company that's not afraid of innovation.

With technological change gathering pace like never before, and IT budgets remaining static at best, the advantages of finance and leasing have never been clearer.

Leasing offers end-users the ability to install the systems they need now but pay for them when the returns they promise actually arrive.

One of Europe's leading suppliers of such finance, leasing and rental services is Syscap. The company has its own online service for resellers, which it will now be offering to Computer Reseller News readers in partnership with CRN's online tools and services.

The move makes Syscap an innovator in the finance industry, which is often noted for its conservatism when it comes to dealing with clients online. But Syscap is a company that is used to change.

It was founded in 1990 as The Systems House UK, specialising in financing for Apple and Compaq systems, before becoming the Systems House Group.

It created Syscap in 1998 as the holding company for Systems Capital and Syscap Computer Rentals, with a view to growing in Europe and offering more flexible leasing and rental deals than any of its competitors.

Last year the company was ranked 72nd in The Sunday Times/PricewaterhouseCoopers Profit Track 100.

Syscap certainly has its fingers in a lot of pies. It partners with a long list of vendors, including IBM, EMC, Hewlett Packard, Sun Microsystems, Sage and CVG.

It also offers technical support, and has separate leasing and rental businesses as well as an internet hosting business. It has an exclusive deal to lease IBM hardware.

In recent years the company has used the bold slogans 'Leasing made easy' and 'Leasing - from one week to five years' to encourage resellers and buyers to seize on the opportunities of its leasing contracts.

In August 2001, and after an investment of about £1m, Syscap launched Syscap Direct, which now sits on CRN's online services site at www.crnservices.co.uk.

It is a dedicated reseller extranet that houses its Trade e-commerce facility, a reseller marketing toolkit and an online loyalty scheme called Redline.

Essentially the system allows registered users, approved by Syscap, to load proposals onto the system within minutes using the proposals wizard. The reseller can track the proposal in real time through all stages of the process, including online credit decisions (underwriting) through to automated document printing.

Registration is available direct from the website and takes about 48 hours, concluding with a call from an account manager at Syscap. There is also an Instant Lease Quote button on the site for non-registered users who want to preview the services.

Each user gets an individually tailored view of all live proposals, and the system provides automation of management reports and real-time sales forecasting. This makes it useful for customer database management, allowing better prediction of future systems changes and upgrade opportunities.

The Trade button on the system is a direct link to Syscap's online trading system. Meanwhile, the Redline loyalty system logs points for online transactions which are redeemable against a range of reward items from an online catalogue.

The system allows resellers to make quick, easy proposals to customers at their premises without the usual delay while a lease is arranged. Syscap sees this as a vital edge, given the importance of closing a deal as soon as possible during or after contact with a customer.

So why lease?
A recent survey by the Finance and Leasing Association (FLA) found that half of UK companies used leasing between 1992 and 1995.

The FLA concluded that for small to medium sized enterprises, leasing is a vital link in the business process, and that many deals and the profitability of these companies depended on leasing.

It concluded that many firms prefer to buy high-specification equipment without a significant initial cost and including simple upgrade options. And for the reseller, leasing brings many benefits:

• It offers a quick approval process
• Small payments may be attractive to the customer
• Monthly revenue streams are created through commission
• It allows fast payment of a lump sum, on agreement with the leasing firm
• It allows the customer to keep payments out of capital-expenditure budgets
• The leasing firm takes on credit risk
• It preserves a customer's working capital by spreading payments
• Upgrades and exchanges can be woven into the agreement
• Interest rate hike insulation can be arranged through fixed agreements
• The tax impact may be more favourable.

With the expansion in financial services there are, unsurprisingly, a large number of firms to go to for leasing and rental arrangements. Experts admit that comparing them is difficult, but two key factors are the speed of approving a deal and the speed of paying out.

Key differentiators between firms are the number of field sales support staff, telemarketing support, local availability, online support and the funds available. Factors that affect decisions on a leasing agreement include:

• Estimations of future interest rates
• Ability to offset deprecation against tax
• The ease of monitoring fair market value during the period of the lease
• The length of the lease term.

The disadvantages of leasing are well documented. A lessee is locked into a fixed-length deal, and ending the lease early triggers penalties.

The cumulative cost is much higher than a cash payment. A lease also puts stress on asset management, because the equipment must be returned at an agreed date. All upgrades and changes have to be well documented.

Finally, a lessee may be concerned about lease ownership in the case of closure or transfer of assets at the leasing firm. Sometimes 'escape' clauses can give the lessee a convenient way out.

But the up sides for lessees are significant. Leasing offers:

• The ability to procure equipment beyond operating budgets
• The ability to renegotiate leasing terms during an agreement
• Ease of spreading costs
• The ability to build 'return' and 'upgrade' terms into an agreement
• The ability to use depreciation to offset income for tax purposes
• Interest rate hike insulation, if required.

Sean Williams, managing director of Syscap, argues that discussions about leasing should focus on the dangers of missing the opportunity it presents in a difficult economic environment.

"I think resellers should be aware that they need to bring their sales teams up to date with the opportunities of leasing," he said.

"They may well have customers who are holding back on deals because of the cash needed. Now it is easy to convert those customers by outlining a leasing arrangement with reasonable monthly terms. If they don't have this as an offer they are missing out on a lot of business."

Syscap is aware that deals over £50,000 are more complex and sensitive, and, broadly speaking, is aiming the website at deals below this.

Williams claims that the whole deal can be set up and approved online without any intervention.

"There is no reason for us to be directly involved but, if a reseller wants, it can request call-back on the site and a consultant will phone them within minutes to discuss aspects of the deal. There is that human involvement if they want it at any point in the transaction," he explained.

Since the launch of Syscap Direct more than a year ago, 1,000 resellers have signed up and there are 3,000 users, with more than 200 deals completed so far.

Typically a reseller enters the key information - name, address, value, term, brief description of sale specification, hardware/software ratio - and this is used to derive the credit rating.

A proposal is generated using a formula that predominantly looks at credit rating and the total value sought.

Williams admitted that it is hard for a reseller which has had previous problems, or one just starting out, to get a leasing agreement. His firm has a preference for well-established value-added resellers with good track records but, in less favourable cases, a proposal can usually be generated.

Is e-commerce the future?
"For the sub-£50,000 trade, yes, definitely," said Williams. "This is the shape of things to come.

"It's easy, fast and allows you to try out different scenarios without phoning a salesperson. I admit we want the site to work even faster and always want to make it easier to use.

"If a reseller gets into the habit of using it we are always prepared to spend time with them helping them to use it even more effectively."

Part of the beauty of the Syscap service is that a value-added reseller can factor in whatever commission it feels able to pass on to the customer, thus having complete control over its own commission structure.

Why link with CRN's site?
"We are impressed with the way CRN is evolving on the web, and its audience is just the kind we hope to reach," explained Williams.

"We are looking to double the number of value-added resellers using the site to 2,000 after a year of providing a link through CRN."

Will leasing suffer from recessionary pressures?
Williams admitted that each successive agreement includes slightly higher premiums to account for the increased risk of bankruptcy. But he believes that the level of leasing activity is increasing overall as more firms seek methods of payment that avoid the need for a lump-sum outlay.

He predicted that in 2003 leasing will become "an essential part of the reseller's armoury". And he warned: "Customers don't have the cash. Resellers must cotton on to this or lose business."

Gaining business advantage
Paul Briggs, editor of CRN, believes that bringing the Syscap service to the CRN website will give resellers a real business advantage.

"We feel there is a real need for third-party finance solutions in the channel," he said. "We are delighted that Syscap is partnering with us to help provide resellers with a one-stop shop solution to help them win more business in today's tough economic climate.

"We see the service as a key weapon for closing deals, and it complements the other services on the site perfectly."

CRN Online Services (www.crnservices.co.uk) now includes a link to CRN's Virtual Warehouse, provided by IT Dealer.com, Green Pages and now Syscap leasing.

Rental and credit-checking facilities are a future option under development, again provided through arrangements with third-party suppliers.