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Contract administration of Managed Print Services (MPS)
deals was an area I got a lot of questions from dealers as
I spent time at industry events this spring. No matter how
far down the MPS path dealers are, pretty much everyone
has a concern about how they are structuring MPS deals to
be successful long term. This is because the devil is in
the details of how you set up, bill and collect monies on
your contracts. To help you avoid any confusion or
pitfalls, the following are the most frequently asked
questions on MPS contract administration.
“What type of contracts should I use, a lease or a rental agreement?” Many dealers choose to write lease agreements for MPS by utilizing both $1 buyout and FMV rates for leased gear with a cost-per pricing. With $1 buyout the customer has the option to own the equipment at contract end for $1. The equipment appears as an asset on the end user’s balance sheet while the related debt appears as a liability during the life of the contract. With FMV the contract provides the lowest monthly payment on the equipment. When the term is completed, the customer may purchase the equipment for the fair market value, continue to lease or return the equipment. Non-financed assets are then blended in the service and supply portion of the monthly payment or per-click charge. End of term or upgrade opportunities are handled the same as other contracts.
A rental agreement is a non-cancelable finance agreement that does not contain a purchase option. Rental contracts may be booked using $1 out or FMV rates. Rental contracts are really focused on the usage of the equipment. There is not ownership of the equipment or purchase options at the end of term. So when the term of the agreement is reached, the end-user has no purchase option available to them. Ownership reverts to the vendor at the end of the initial term, at which point the dealer has several options. You may continue to rent to the customer, where your finance company can continue to bill and collect the monthly rental payments and remit the collected payments (less an invoice fee). You may also sell the equipment to the customer for fair market purchase options determined by you and keep the proceeds. Other options would be to assign title of the equipment to your customer at no charge, return the equipment or upgrade into a new transaction. “What trends do you see with MPS contracts?” We see many successful dealers using a hybrid approach to their MPS contracts by writing rental agreements that are $1 out to the dealer. This is a great strategy because the dealer doesn’t have to worry about a high upgrade figure when you want to roll the deal. This avoids a MPS deal getting upside down with pricing issues, etc. If the deal is $1 out to the dealer, you can charge whatever you want for the customer to own the equipment end of term. In addition, the dealer also has full control of the back-end of the contract under this scenario. Instead of the leasing company attaching a residual, the dealer controls this. You may want to name a higher figure if the customer is hopping the deal or a competitor wants a buyout figure. You could also charge a restocking fee if the customer moves the contract to a competitor or wants to return equipment. “Should I write contracts with allowance or minimum?” It is really up to the dealer to determine the best way to craft your MPS deals and present cost to your customers. With allowance, the document shows the payment, image and excess images charges (overages). With minimum, the document shows the per image charge, the minimum required images to be made and the excess image charges. The payment is not shown. Example: “How do I get my money on MPS deals?” The model of how the money flows on an MPS contract is really simple. You present a total monthly or per-click charge to your customer and have your customer execute your contract form of choice. Your financing company will then invoice for the financed gear plus your service, supplies or other charges monthly. You are funded an upfront financed amount that can include equipment, buyouts and installation charges. The recurring service dollars then pass through the finance company. The remaining payment that includes services and supplies is then remitted to you on a weekly, bi-weekly or monthly basis depending on your needs. These pass through monies can also be changed during the term of the contract if you need to increase or decrease the number of images or choose to include escalations in your contract. “What are ways a finance company can make MPS easier for me?” Some of the ways MPS can be made easier is for you to choose a finance partner that can move important customer data between your ERP and other software systems. Such integrations can make meter collection and posting simpler while streamlining processes and administration time spent on MPS accounts. In addition, look for companies who invest the time to really understand your business and the MPS model by offering flexible programs, contract and invoicing options. MPS contracts present unique opportunities for invoicing where you may need work group breakouts, pooled by department, asset class or location, assets level billing or consolidated. If you understand the customer’s invoicing needs prior to the contract starting you can save frustrations for everyone. The right financing company will enable you to implement Managed Print Services with greater speed and accuracy. Jennie Fisher is Senior Vice President and General Manager of the Office Equipment Group at GreatAmerica Leasing. If you have additional questions on MPS email her at jfisher@greatamerica.com. |
FAQ:
MPS Contracts