Fleet Solutions

Fleet Solutions

In order to assess the impact on cash flow for fleet solutions we need to establish the main options for funding and acquisition of fleet vehicles from a financial standpoint.

Funding for company cars is really no different from funding any other business investment project in that there are a number of different options - or fleet solutions - of which no one solution is right for all companies.

In principle, there are just three alternative methods of fleet solutions:

• Self funding -from own cash sources
• Borrowing- from other cash sources
• Leasing (long term) or renting (short term)

Apart from just the overall fleet solutions cost there are two other main considerations; who benefits from the writing down allowance and who bears the residual risk It may also be important as to whether the asset (leased or owned) appears on the organisation's balance sheet. You also need to consider how certain you need to be regarding future costs and the amount of effort you will or will not put into the purchase, management and disposal of the vehicles.

Over the last twenty years the competition for market share has seen some very innovative fleet solutions for car and commercial vehicle fleet funding, which employ a combination of one or more of the above giving a much wider choice and a greater need for comparison when making the decision as to which funding method best suits the operation.

To make the choice of which fleet solution best suits a particular operation the decision maker must be familiar with all of the fleet solutions available and be aware of the financial impact it may have on that operation. The principal difference between purchasing and leasing will be with whom the title is vested thus effecting the financial implications of Income and Corporation Tax and VAT.

Purchase Options

Outright Purchase

Hire Purchase

Lease Purchase

The main feature to note of all these three methods is that in each case title will (eventually) pass to the user.

Leasing Options

The one characteristic of all types of lease agreements apart from those already mentioned is that title (ownership) is always vested with the Lessor (The Lender) and can never pass tothe Lessee (The User).

Leases are generally categorised in two ways:

• Finance Leases
• Operating Leases

As already stated, title never passes to the user and as such it might be expected that nothing would appear by way of assets on the balance sheet of the user. However in order to stop distortion to the ratio of capital employed with companies leasing most of their assets, the Accounting Standards Board require that under certain circumstances, generally where the residual value risk lies with the fleet operator, the capitalised value of Leased Assets must be disclosed in a company's annual financial statements.

Finance Lease

Operating Lease

Car Hire

• Daily Rental
• Mini Lease