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Introducing the Concept of Rental
- The basis of any operating lease is a rental agreement where the renter pays periodic rentals for the use of assets.
- Rentals are based on the reducing value of the asset throughout the term of the agreement.
- Ownership rests with the lessor throughout.
- No bargain purchase option or residual commitment is negotiated at the time of inception of lease.
- Operating leases must meet the criteria specified by prevalent accounting standards of the country.
Companies benefit by using technology, not owning it
To keep the competitive edge, businesses must continually invest in technology.
- Often, vast amounts of unutilised equipment is taking up valuable space at a high cost to company.
- In todays fast-moving business environment, companies are finding it increasingly challenging to keep up with an even faster pace of technology advancements as IT hardware manufacturers and software developers continuously introduce new and better equipment to make users more productive.
- The useful lifespan of IT equipment has been steadily declining. This is coupled with continuing drops in acquisition costs because what you pay for today is worth less tomorrow, never mind in a couple of years time.
These trends clearly indicates that ownership is no longer a viable option for companies intent on staying current with new technology offerings and for those who wish to reduce the operating costs of technology.
Businesses want to Invest Capital on Investments which
Give Returns
This makes investing in technology counter-intuitive because purchased technology is expensive. First theres the cash layout on the initial purchase price of hardware and software, add services, warranty, maintenance, forgotten contractual terms and conditions, and upgrades. Then at the end of an IT assets usefulness, there are the costs and overheads associated with removing and disposing of the obsolete hardware and introducing the new, upgraded system. Add the cost of downtime, or related issues, when technology expires and businesses do not upgrade to newer technology, or even, the cost of downtime during migration. What about shipping and documentation? Another question is how much income generating business could have been bought for the cash thats being laid out for equipment?
What's the Alternative?
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