individuals that require the use of a
vehicle or number of vehicles for various
purposes but do not want to take owner-
ship of or the risk of maintaining vehicles
and then disposing of the vehicles at the
end of the term,” says Derick de Vries,
Executive Head of Standard Bank Fleet
Management.
These agreements allow users the full
use of the vehicle for an agreed term,
after which the vehicle is returned to the
financing institution.
Full maintenance agreements free
up capital, which would otherwise have
been tied up in your fleet, for in-
come-generating opportunities and are
tax-deductible as an operating expense
under company tax regulations.
“Full maintenance leases are a
cost-effective way for operators and
business owners to acquire the vehicles
they need to run their business and uti-
lise them by paying a once-off monthly
fee. They will have the use of the vehicle
in a hassle-free manner at a much lower
rate,” says de Vries.
Leasing offers several distinct
advantages, including the fact that no
cash is needed upfront to secure the use
of vehicles and that the use of vehicles
is funded from cash flow; it doesn’t add
to the users’ debt portfolio. In a volatile
market, leasing makes sense because
the payment and terms are fixed and are
a hedge against inflation.
Leasing eliminates surprises, as there
is no risk of disposing of the vehicle at
the end of the contract or unexpected
expenditure on service and mainte-
nance. Budgeting and forecasting are
accurate as costs can be fixed for the
selected period.
However, there are also some
disadvantages, including that you never
own the vehicle and that realisation
of the residual value resides with
the lessee.
The maintenance component of a
full-maintenance lease will be based
on annual kilometres travelled, and
the operating conditions and excess
kilometres will be charged at a higher
rate. It is important to do research and
know your requirements to choose the
right package for your business and the
operational requirements of the vehicle
being acquired. It is also important to
establish who is permitted to perform
maintenance and repairs, what limits are
in place, and ascertain if this is feasible
within your geographic area of opera-
tion. The choice of vehicle and brand,
as well as their after-sales network, is
important in this regard.
The flexibility of leasing is increasingly
making it an attractive choice, as is the
fact that leasing can be tailored to suit
the specific cash flow needs of individual
companies and operators.
Leasing agreements are now an im-
portant offering and a desirable method
of acquiring depreciating assets such as
trucks. At the culmination of the lease
period, there are a couple of options,
including replacing the vehicle with a
new, more productive model, taking
ownership of the vehicle that has been
leased or extending the lease period for
the same vehicle.
“For larger operators who are
engaged in several different transport
operations, it might be a good idea to
consider more than one method of ve-
hicle financing. Each method will have a
different effect on the cost of operating
trucks, the taxes you pay and your profit
margin,” concludes de Vries. BFA
June 2023 | BUSINESS FLEET AFRICA
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