For a growing business, it isn’t always easy to access funding packages for a fleet of vehicles. Winter maintenance specialist Gritit found this out early on, according to the firm’s finance director Matt Benham. ‘In the beginning when you are growing, finance houses are reluctant to give you huge funds,’ he explains.
The same problem was faced by Merseyside property services company, One Vision Housing. Director of operations Paul Broadbent notes, ‘We were looking at investing in a fleet but we were a start-up so obviously credit lines were limited and credit history did not exist.’
For Gritit, which was founded in 2004 and now has a fleet of over 100 vehicles, the answer was to go with a number of different finance providers. That proved administratively messy, says Benham, who adds, ‘it would have made much more sense having one’.
Gritit has always funded its fleet through finance lease, in which a third party, or in Gritit’s case a number of parties, purchases the fleet and the company using it makes regular monthly payments. ‘We have been doing four- to five-year finance plans,’ details Benham.
In this model of funding the firm bears all costs of ownership, for example servicing and taxing the vehicles. Gritit owns most of the vehicles now, as the four or five years have elapsed. ‘We have kept the vehicles at the end of the lease period rather than selling them on or back,’ Benham explains. ‘Because we only use them six months in the year, the mileage is quite low and they are in good condition.’
Over the past four years the company has grown turnover from £2.5 million to £8 million. Benham states that its successful growth has meant that it now has one sole finance provider – Barclays’ asset finance arm.
‘As we have grown the bank has come on board. Having one provider allows us build up a strong relationship and is much cleaner administratively,’ notes Benham.
One Vision Housing’s story is a little different to Gritit’s but it too values the strong relationship you can build up with one provider. In this case, One Vision has had one provider from the outset: Northgate Vehicle Hire.
‘We have developed a good relationship with them,’ reveals Broadbent, who adds, ‘Even in the future if we have to pay a few more pennies we would probably stay with them. A good partnership makes all the difference.’
Broadbent describes how as a start-up with no credit history One Vision secured a three-year contract with Northgate. ‘The management team at Northgate actually came and visited us and took a view and decided we were a good customer. We will always remember that they believed in us.’
The fleet management arrangement the Merseyside firm has with Northgate is a system called flexi-lease. ‘It is exactly as it sounds – very flexible,’ says Broadbent. The system is a form of contract hire, where Northgate provides the vehicles and other services, such as the servicing and taxing, and there are no ownership risks for the customer.
One Vision has a core fleet of around 80 vehicles. ‘Being a property management services company we need different types of vehicles, such as transit vans and cab vans for example, and the attraction of the flexi-lease is that if something is no longer required we can give it back or swap it,’ explains Broadbent.
He points out that the firm doesn’t do this often but knowing that the option is there is a great help. ‘The other attraction of the flexi-lease,’ he continues, ‘is if one vehicle is getting repaired or serviced we are provided with a replacement. And this replacement is dropped to us and collected from us.’
Companies should not assume that such services are offered as standard, Broadbent warns. ‘We were in talks with four different leasing companies. You should always do sufficient research before signing any deal.’
While it might make sense to have a single finance provider, that doesn’t mean you’re limited to one mode of funding. Schneider Electric, the UK subsidiary of the French-owned energy management specialist, is a prime example of a company that uses multiple financing options from the same provider.
The group is made up of a collection of operating divisions and these units evolved from a series of acquisitions and restructurings. For this reason, a number of legacy fleet providers were historically employed across the company. Schneider Electric set out to harmonise the fleet system and chose Hitachi Capital, which already worked with its buildings division, as its sole provider.
Over the space of a year Schneider worked with Hitachi to come up with a policy that included a range of vehicle funding options in order to meet the needs of all units across the company. ‘Despite the differences in funding methods, the scheme is designed to give all our employees an identical experience,’ notes finance director Trevor Lambeth.
Pick and mix
The policy combines contract hire, employee car ownership (ECO) and gross cash allowance. ECO is a system where the contract is in the name of the driver, and is considered the most cost-effective scheme for high mileage drivers where tax-free mileage allowances can be paid. Gross cash allowance is paid to employees whose business mileage is low and easy to pay in cash.
Hitachi Capital manages all aspects of the fleet including vehicle maintenance and accident management, meaning that neither Schneider Electric nor its employees generally bear the costs of ownership.
Although Gritit has exclusively used a finance lease policy over the years, Benham sees the benefit of multiple fleet funding options and reveals that the company is in the process of incorporating rental.
‘This year we are going to trial rental with 10 to 15 vehicles,’ he says. ‘The option looks very good and with renting there are no administration costs.’
Benham is confident that the new funding model will work well and if it does, he sees a future of 50 per cent finance lease and 50 per cent rental.
‘Over the years we have tried a number of different vehicles and this is where renting could really come in to its own – it would allow us try out new types,’ he states. Another benefit of renting comes out of the seasonal nature of Gritit’s business. ‘For the six months we are not using our vehicles we have them in storage, so again that is more added costs that renting would cut out.’
The team at Gritit is not rushing into anything though, hence the trial period. ‘You have got to be sure something works before you sign a long-term contract,’ notes Benham. ‘The rental market seems to have come on leaps and bounds in recent years and has become very competitive. But the thing we are not totally convinced on is the fact that you don’t know of any further costs until you bring back the vehicle, which is when they can spin you. We carry a lot of salt which is highly corrosive, so that is a worry,’ he adds.
Benham looks forward to testing the system and advises those looking at investing in a fleet to explore all angles. ‘There are so many options out there and I would say above all else take your time and do your research.’
One Vision Housing’s Broadbent adds,
‘A reliable fleet is so important, so if you get a good supply chain working you will have no problems.’
Most popular fleet funding packages
Contract hire: The provider finances the purchase of a fleet and provides other services, such as maintenance, for a fixed monthly charge. There are no ownership risks to the customer.
Outright purchase: Customer buys the fleet outright and bears all costs and risks of ownership.
Finance lease: A third party purchases the fleet and the customer makes regular rental payments for the lease and bears all costs of ownership.
Hire purchase: Very similar to finance lease. At the end of the contract the customer is given an option to buy
Rental: A flexible option that sees the customer rent vehicles on daily hire or for longer periods. The rental agent bears all ownership responsibility.