Asset Rental Finance: How Lease Software Can Help

Introduction

There has been tremendous growth in vehicle and equipment leasing. Allied Market Research reported the global equipment leasing market value as $1.2 trillion in 2022, projected to reach $3.1 trillion by 2032, growing at a compound annual growth rate (CAGR) of 9.7%. Asset rental finance makes high-value equipment and vehicles available to users without capital outlay. The focus changes towards managing these assets efficiently. 

Operationally, large portfolios can be challenging to manage without the right tools. Lease software is used to drive automation and controls through the lease lifecycle. Lease software is a tool to assist lessors in asset rental finance processes that result in better compliance and decision-making to drive profitability. 

The Role of Asset Rental in Modern Finance

Organizations in the construction and transportation industry use asset rental to procure and use equipment and vehicles as and when needed. Asset rental eliminates the need for organizations to incur capital expenditures to procure and manage these equipment and vehicles.

For example, a construction firm wins a contract to build a facility at a location not close to its home base. They procure equipment and vehicles on asset rental from a lessor near their worksite to efficiently start and minimize cost by returning the equipment on completion of work. 

Lessors deploy the same equipment to different organizations, optimizing usage and increasing profitability. 

How Lease Software Can Help in Asset Rental Finance

Automation of Lease Management: The lease lifecycle has many repetitive tasks. Streamlining processes and operations enables automation with adequate controls to minimize manual intervention and errors. These activities are renewals,  invoicing, payments,  delinquency reminders, etc. Automation can free up time and valuable resources to perform value-added activities and minimize human errors.

Compliance and Accounting Standards: Accounting standards have been updated globally to IFRS 16 and ASC 842. Though this primarily impacts the lessee’s accounting of leases by stating them on the balance sheet, there are some impacts on lessors. Lessors rely on the right lease software solutions to maintain, calculate, and account for these leases.

A study by PwC found that 60% of organizations reported challenges in complying with the new lease accounting standards due to the complexity of lease contracts. Operating lease software addresses this issue by automating compliance, reducing the burden on finance teams, and ensuring accurate reporting.

Financial Management and Cash Flow Optimization: Lease software helps lessors automate billing by generating and sending invoices to customers before the due date. Streamline payments by sending reminders before the due date and as soon as the invoice is past due. Increase the channels for customers to make payments. Automate the calculation and application of late charges.

Lease software increases financial visibility by projecting cash flows for the portfolio. Cash flow management is one of the core tenets of leasing. 

Improved Asset Tracking and Utilization: Lessors need to maximize utilization of their assets managed through operating leases to achieve the desired return on investment (ROI). Lease software helps them track when an asset is due to be returned to identify options to increase utilization by finding another lessee or extending the lease with existing customers. 

For instance, a lessor providing material handling equipment on lease needs software to track when each piece of equipment needs to be serviced and can be released. They contact potential customers well in advance to reduce downtime and increase profitability. 

Data-Driven Decision-Making: Real-time access to data and analytics is critical in the fast-changing leasing environment using the right operating lease software. With crucial information, the operating and executive teams can track leases and payments to make appropriate decisions to retain customers and grow their business. 

For example, for a lessee with multiple copiers,  the lessor can track the performance of each copier to optimize performance. They can provide options to upgrade equipment when needed.

The Impact of Technology on Asset Rental Finance

As new technologies emerge, they impact the asset rental finance landscape. Advances in cloud computing, artificial intelligence (AI), machine learning, and data analytics in lease software drive transformation. Users now access their systems from anywhere, allowing lessors to scale as their business grows. AI and machine learning improve operational efficiency and reduce costs by predicting trends or providing insights.

Lease software also integrates telematics, GPS, and Internet of Things (IoT) devices to enhance asset tracking, usage, and condition with real-time updates. Lessors better manage costs and increase profitability.

Conclusion

Lease software is a crucial tool for equipment and vehicle lessors in the constantly changing landscape of asset rental finance. Automating functions relating to compliance, cash flow management, and asset tracking to manage leases improves efficiency and profitability. Technology advancements in AI, IoT, and data analytics drive improvements in lease software for modern lessors to manage their complex and growing portfolios.

Lessors need lease software to remain competitive. Digital technologies enable asset rental finance organizations to position themselves to succeed.