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The basics of an equipment rental agreement - Part 2 - Payment

Working out the details of your equipment rental agreement is a lot of work.  We at EquipCalendar understand and hopefully we can help with our series of blog posts about the basics of an equipment rental agreement.  Today's post focuses on payment.  Here are some suggestions:

Explicitly define the rental rates the Renter agrees to, for each and every piece of equipment included in the rental.  Define the amount per minute, hours, days, weeks or months they are renting the equipment for.

Include an "authorization to charge" the debit or credit card on file and that all payments and fees due under this Agreement will be charged using that card.

List all "other charges", this can include optional services, such as cleaning and repair, applicable taxes, loss or damage or repair, late fees, expenses to recover unreturned equipment by the Renter, and all costs to collect unpaid monies due (including insufficient funds).

Also, should your business support installment payments, define the terms (days or dates within a due date) for making those payments and any surcharge per period (hours, days, weeks, months) for late payments.

In case you missed the first post in this series, regarding "Defining the terms", you can find it here.

The basics of an equipment rental agreement - Part 1 - Defining the terms

The best place to start designing your rental agreement is to define the terminology you will be using in your equipment rental agreement.   Think of it as a glossary or dictionary, i.e. give meaning to the words you are going to be using repeatedly.  Here are some suggestions:

Renter:  The exact name(s) of the person, persons or business, including staff name(s), renting your equipment.  Include their address and any or all contact info.  Establish their identity!

Owner:  The name of your legal entity representing your rental business.  Include full address and multiple forms of contact.  Give the Renter every available option for reaching you in need!

Equipment:  The brand, model name and serial numbers of any or all equipment provided as part of this rental agreement.  Even if it's just an accessory provided as part of the main rental, include it here.

Consent:  Explain in your agreement that the Renter fully understands everything stated herein.

Use:  The customary use of the rental equipment, including it's manuals, in accordance with any applicable law.

Agreement:  This document and how it represents the entire understanding relating to the subject matter hereof and prevails over any prior or contemporaneous, conflicting or additional communications.  The Agreement can only be modified by a written amendment signed by the Renter and Owner.

Inspection: Confirm the Renter has examined the rental equpiment items and found all items to be in good condition at the time of delivery, and agrees to return all items in the same condition as received (normal use expected).  

Rental Period or Term:  Explicitly state the absolute start and end dates.  Define the return policy and any credits, or lack of refunds, for any unused minutes, hours, days, weeks or months.  Also define any policy you may have regarding rental extensions, such as sufficient notice (no. of hours or days?).

Stay tuned for the rest of our ten part series on the basics of a rental agreement...

Key steps to equipment rental profitability

Investing in rental equipment is really no different than the process of investing in equipment that you purchase.  You have a figure in your head that you need to stay below for your budget to work, then you go and shop around for the best value for your money.  Finding a supplier won’t be hard, most manufacturers today offer their own leasing options.  Finding an investor is typically much harder, but if you do your homework, it should be a natural progression.  Let’s rundown what factors into equipment rental profitability.

Looking at Quotes

To avoid wasting unnecessary time listening to every company’s sales pitches, you should come prepared with a list of specific needs and limitations.  Being proactive with your approach can get you quotes that most buyers will never get, because the leasing company knows that you are serious about renting their equipment and could step away if they feel that they aren’t being heard.

Companies that have a good reputation will lay out everything in plain English and will not try to skip any of the fine print.  This is especially important for a long-term contract, where you’ll be in a close relationship with that company for a long time.

Stiff Competition

In the tough economy of today, investors are much more complex and are able to select from a wider array of options today to minimize risk and maximize profits.  It seems that the biggest challenge of today’s market landscape is finding ways to inject more capital into their business, by building up a strong foundation, which can come from reducing equipment costs through leasing equipment.

No matter what type of business or industry you’re in: medical, construction, retail, automotive, or office space, there are going to be opportunities for you to take advantage of through renting instead of outright purchasing equipment.  The distribution channels are favoring major investments, giving companies fewer options.

Growing Investments

Entrepreneurs stepping foot into new markets are a high-risk investment for venture capitalists, so it’s going to take a lot for them to take the first bite.  The truth is, the odds are not in the favor of the little guy who is trying to grow his business.  They’re a nobody, an unknown brand on the market that has to prove themselves to be worthy of investment.  It makes most industries involved in the utilization of expensive equipment, parts, and services start in a very precarious position, as margins and sales are typically hard to move into the positive right out of the gate.

The big name brands in their respective industries started in an advantageous state before the 80’s, when regulatory rules and competition in the rental business was much more relaxed.  The road for the small business startup who wants to turn a profit being an equipment dealer is a long and hard one, but for those who tough it out and develop a successful strategy, the rewards will be well worth it, as more and more businesses depend on renting equipment to help grow their businesses and get the investment capital they need to continue to prosper.

Raising your equipment rental rates

Renting equipment, rather than outright purchasing is a major bargain for businesses.  At some point and time, you’re going to hit a ceiling on your profit margins, and you’ll need to start looking at raising your rates.  The renting business is very lucrative, once you have your foot in the door, it should be producing numbers as high as two to three times as much as your typical retail establishment.  

If you’re asking “how?” while reading this, then the answer is by carefully crafted rental fee rates.  Not too much, to where you scare off your new customers, but not too low to where it just looks like you’re trying to nickel and dime your regulars.  Before raising your equipment rental rates, you need to make sure all other aspects of your business are up to par, let’s go over the key parts.

Customer Relationships

Customers have daily and weekly equipment needs. This means multiple opportunities for contact each week. Frequent interactions provide the opportunity to know the customer. People generally enjoy doing business with people they know.
Rental is about reliable delivery of services — your capacity to serve the needs of your client by accepting the money related risks, the logistical pains and the continuous upkeep and repair parts of relationships. You are offering them more than just equipment, you’re offering them a partnership.

Rental builds the stream of new products into the business by bringing down the clients’ investment risk. Offering dependable rentals is truly "repackaging" existing items to draw in more clients and change their purchasing habits. Rental has a tendency to open up business sectors where deals have been moderate, and build market infiltration where deals are energetic. 

Promoting Strong Business 

Equipment rentals can be a standout factor amongst the best in any given industry, showcasing relationships and connections with a non-traditional hardware merchant. Offering simpler access to tools that businesses need, previously unobtainable, is now all a part of a strategic business plan, which will pull in new clients at a remarkable rate. 
Equipment rental is not a one and done business decision, but instead a long haul relationship serving clients. Showing rentals to your clients ought to be considered as instructing your clients to better deal with their hardware necessities through "outsourcing." Rentals offer clients effective utilization of budgetary capital and also HR in administration and backing. 

Advantages for those that properly position themselves in the rental channel include: 
Quicker merchant installments - rental companies make income that can pay down merchant obligation 
Builders will have a generally safe strategy to experiment with new brands or items 
Merchant who use rentals develop the utilized machines that will help seed the business for parts and administration 
Improves merchant productivity 
Diminishes the general business hazard for the new small businesses 
Rental permits clients with negligible financial assessments to get acquainted with equipment 
Rental gives the new merchants an administration stage to draw in clients showing their capacities before offering the client the final product

Economic instability is the companion of an equipment rental business. Rental ought to be perceived as the answer for every industry that needs expensive equipment. It's useful for the OEM, useful for the merchants, and useful for the builder, genuinely a foundation for future investors.

Renting as a viable alternative to purchasing equipment

Contingent upon your particular business needs, and in addition the state of your business funds, renting your business hardware could be a solid investment. What's more, if yours is a new company that is strapped for money or on the off chance that you are thinking that it’s hard to secure the credit important to back your business, renting may be the perfect alternative for getting the business equipment that you need. 

Nonetheless, regardless of the possibility that you’re in a dire situation, you ought to view renting companies as potential suppliers for all your hardware needs and other substantial business resources. You won’t have a problem discovering organizations willing to rent just about anything for every major industry nowadays, that’s for sure.
The question becomes: are you able to benefit more from renting your equipment, rather than purchasing and owning it?

Leasing over Purchasing 

The primary favorable position of renting is that you can by and large pick up the advantage of having access to the equipment that you need with less of an upfront cost.  Rentals seldom require up front installments. At the end of the day, renting may adequately give the advantage of up to double the financing (in spite of the fact that a refundable security deposit may be needed in a few cases).

There are various preferences to renting your hardware and business resources, extending from affordability to adaptability in tending to the needs and suitability of hardware: 

Easy Access

You'll likely have a simpler time discovering somebody willing to rent you gear than somebody willing to offer you credit to buy the hardware. One reason is that with a lease, title to the property stays with the lessor so in the event that you miss a few installments, the lessor can immediately recover the investment. Moreover, under a lease you may have the capacity to arrange a more extended installment period (bringing about decreased installment sums) and/or a more adaptable installment timetable (bringing about a superior coordinating of your installment commitments with your income) than you would have the capacity to arrange under an advance. 

Equipment rented once in a while incorporates any procurements that limit your future budgetary operations. Interestingly, it is not out of the norm for an advance consent to incorporate limits on your capacity to buy extra hardware or to obtain extra finances without the bank's authorization. 

Feeding Your Growth

Renting may empower you to better keep pace with enhancing innovation. For computers, specialized electronics, and other gear that is liable to experience quick innovative change, you'll have a less demanding decision on persuading yourself to put resources into upgraded hardware on the off chance that you obtained your current gear under a lease that incorporates a hardware upgrade clause.

Renting your equipment offers you the flexibility that is often impossible to find when starting up a business.  Every decision you make can feel like choosing between the success and the failure of your business.  Equipment rentals offer that relief that you don’t have to make the perfect choice on which brand or model you’re going to use to get the best value and efficiency possible.

Lastly, renting your equipment allows for a tax advantage that makes rental fees fully deductible for your business.  This is no small factor to consider, whether you prefer to own all your equipment in-house, or lease everything to feed your rapidly growing business.