Cash flow is king with sale and leaseback

Lloyds TSB Autolease (LTSBA) is reporting a two-fold surge in businesses looking to improve cash flow from sale and leaseback agreements.

In the last two months alone (November/December), LTSBA has churned out a record number of quotes and purchased £10 million worth of company-owned vehicles on a sale and leaseback basis, providing a valuable cash injection for UK firms.

Colin Thornton, Channel Sales Director for Lloyds TSB Autolease says: “Sale and leaseback is still a fairly small proportion of our overall business, but it’s definitely one of the fastest growing.

“The credit squeeze is forcing companies of all sizes to examine the value wrapped up in their assets and seek ways to release it without compromising operating efficiency.

“Sale and leaseback fits the bill perfectly as a convenient way to shift the risk of ownership and release cash for investment into other areas of the business, or finance debts. There’s a real appetite for it from the market and we’re seeing more referrals coming through from our parent bank, which demonstrates that fleet savings are firmly on the boardroom agenda.”

LTSBA points out that in the current climate it’s increasingly difficult to predict residual values, but sale and leaseback offers businesses the comfort of a cash injection alongside a flexible, longer-term disposal strategy.

Colin Thornton continues: “Many companies have contract hire arrangements in place and own a number of vehicles as well. It can mean there’s a lot of untapped capital tied up in a depreciating asset, particularly if they’re high mileage, in poor condition and not well maintained.

“That kind of stock can take considerable time to dispose and in the short term it often makes sense to retain them on fleet with leaseback arrangement while quality, new, replacement vehicles are gradually introduced.”

One of LTSBA’s customers – a housing association called RCT Homes – has recently taken up a sale and leaseback agreement on its fleet of 60 commercial vehicles.

Following this comprehensive fleet review, Lloyds TSB Autolease recommended a sale and leaseback option to free the capital tied up in the vehicles, and provide a cash injection.

The burden of fleet administration, vehicle sourcing and replacement was transferred to Lloyds TSB Autolease, with contract hire providing the financial stability of regular monthly payments to streamline budgeting.

With preparation for the eventual disposal of the current fleet in mind, the agreement is scheduled to take place over a 16-month period, during which time Lloyds TSB Autolease and RCT Homes will work towards the planned replacement of the existing fleet.

This process will involve consultation and advice on fleet policy, and will include sourcing and adapting vehicle models better suited to the user’s needs and meeting CO2 reduction targets. At the end of the 16-month period, the new fleet will be ready for implementation under a renewed contract hire agreement.

Resources Director, Malcolm Wilson, says: “The fleet we inherited (from a local council) was unsuitable for our purposes in a number of areas, and we wanted to explore a cost-effective way in which we could fast-track the replacement of these vehicles with ones more fit–for-purpose.

“Using sale and leaseback was an obvious choice. Not only did it offer long-term economic benefit to the company, but helped us reduce the administration of the fleet.”

Colin Thornton concludes: “At the end of the day many aging vehicles are being taxed out of existence. Sale and leaseback offers an affordable method for fleets to introduce new, low-emissions, tax-efficient stock while eliminating the risk of ownership.”