Most forklifts in Britain are acquired through some finance arrangement like hire purchase, lease purchase or contract hire but there is some difficulty distinguishing between the options which could lead to missing out on winning the best acquisition terms. Hire purchase, as it says on the tin, is the most straightforward to define and the least problematic when the agreement period ends. After the agreed repayment period and initial deposit the buyer acquires ownership and during the HP period is responsible for all the truck’s servicing and maintenance.
Matters become more complicated when a finance lease option is chosen. This requires the customer to pay for the truck’s use, normally over a five-year period, at the end of which a third party, usually the OEM or authorised distributor, promises to guarantee an end-of-lease contract residual value. When that happens the user has the choice of two options: send the truck back to the lessee (finance provider) who will call in the residual value guarantee from the supplier, or 2) renegotiate an extended lease for the truck at a much lower rental, leaving the truck supplier still owning the truck. Again, all servicing and repair costs are the responsibility of the truck user. There can, however, be a problem over residual values if the truck has been returned in an “unsatisfactory” condition.
The most commonly used finance arrangement is the Operating Lease with repair and maintenance, known as contract hire. Similar to the straightforward finance lease, it differs in having a fixed, full monthly contract charge added to cover all maintenance during the contract term, a structure that allows the deal to be treated as an operating lease for tax and audit purposes. Such a lease, however, can be a minefield for the unwary and so requires proper checking as to what is and is not included in the maintenance contract. Going over the limit for hours usage, for example, can incur penalty charges. Contention can also arise over “fair wear and tear” issues, with a truck user being hit for a big bill for quite small repairs. The FLTA has issued a guidance booklet on what constitutes fair wear and tear but the annoyance can arise over the amount charged for a necessary repair. There is a risk that these charges may be inflated by truck suppliers in the hope that by offering to negate them the hirer will renew the contract for a further period.
Truck acquirers should also protect themselves by thoroughly checking the financial well-being of the truck maintenance service provider. What happens, for example, if the maintenance provider goes bust? The finance house will not want to know, and so one could be stuck with higher maintenance bills from a new service provider. It is inadequate relying on bank references alone. Try using financial models that can predict bankruptcy up to two years ahead with a 90% accuracy rate. Dealing with the big truck makers should offer some reassurance here.
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