How Operating Lease Software Simplifies Lease Management.

Introduction

Leasing allows the person who needs the asset to use it without taking ownership. Based on the nature of asset, and requirements of the lessee, lessors structure the lease as a finance or operating lease. Operating leases are typically setup for assets with a longer life than the lessee desires to use enabling lessors to take the asset back after the lease and make it available to others in need.

The global leasing market was valued at over $1.6 trillion in 2022, a significant portion are operating leases. Operating leases need to comply with accounting standards in addition to operational considerations like asset tracking, depreciation, cash/contract management, and customer service. Lessors are managing operating leases by automating the integration of different systems into a streamlined solution to manage these complex operations.

The Importance of Operating Lease Software

1. Streamlining Lease Management Processes

Lease management processes require orchestration of multiple functions like contracts, assets, cash, maintenance and end of lease term. Trying to manage these manually or using spreadsheets could result in efficiencies and errors which are costly for lessors.

Organizing all lease, asset and customer data into an integrated solution helps lessors alleviate this issue.

2. Ensuring Compliance with Accounting Standards

Accounting standards have been updated across the world to IFRS 16 amd ASC 842. Though this primarily impacts lessee accounting of leases by stating them on the balance sheet, there are some impacts on lessores.

Lessors need to rely on the right software solutions to maintain, calculate and account for these leases in their income statement and balance sheet.

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.

The Role of Technology in Simplifying Lease Management

Technology helps lessors simply lease management for both finance and operating leases. These solutions help them improve automation and get real time analytics to effectively manage their business. 

1. Automation and Workflow Optimization

In the lease lifecycle, there are many repetitive tasks. Streamlining processes and operations enables automation with adequate controls to minimize manual intervention and errors. Some of there activities are dispatch of invoices, due date reminders,  delinquency reminders, calculation of customer exposure etc. Automation can free up time of valuable resources to perform value added activities.

An equipment lessor can automatically generate invoices prior to the due date, send invoices to lessees well in advance to improve cash flow and profitability. Similarly, lessors bundling maintenance with their leases can track when service is due and follow up proactively to ensure assets are providing the best output possible.

2. Real-Time Data and Analytics

Real time access to data and analytics is critical in the fast changing leasing environment. This can  be achieved through the right operating lease software. With critical information at the fingertips, the operating and executive teams can monitor asset performance, payment histories and profitability enabling them 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 helping the lessee achieve their desired output.

Financial and Operational Benefits of Operating Lease Software

1. Improved Cash Flow Management

Operating lease software helps lessors automate billing by generating and sending invoices to customers in advance of 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 calculator and application of late charges.

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

2. Enhanced Asset Utilization

Lessors need to maximize utilization of their assets managed through operating leases to achieve the desired return on investment (ROI). Operating 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 equipment needs to be serviced and can be put back on lease. They need to contact potential customers well in advance to reduced downtime and increase profitability. 

3. Reduction in Administrative Costs

Minimize errors and reduce costs by using operating lease software to help automate leasing processes. Apply this efficiency to engage your teams to higher value added activities like business development, customer service or business development.

A report by Deloitte found that organizations using lease management software experienced a 30% reduction in administrative costs due to the automation of routine tasks. This highlights the financial impact of adopting lease management technology, particularly for lessors seeking to scale their operations.

Conclusion

Simplify operations and enhance efficiency by automating key processes in your leasing organization with operating lease software. It is a vital tool to manage cash flow, compliance and asset tracking. Real time data and analytics allows lessors to take timely and effective decisions. 

The need for innovative leasing solutions is driven by development of new products and unique funding needs of customers. Lessors investing in the latest technology position themselves for growth in this dynamic environment.