Finance Options for Business Phone Systems

Like other capital items for your business, you can conserve your working capital by financing the cost of your business telephone system. The standard forms of finance are rental ( sometimes called Operating Leases) or Financial Lease. Both allow you to spread the payments usually over a three, four or five year term. It will be more difficult (and more costly) to obtain finance if your business has been operating for less than 3 years or you have some negative credit history.

Financial Lease

• The distinguishing characteristic of a financial lease is that you own the asset and commit to a regular payment schedule for the term of the lease. At the end of the lease you will pay the finance company a once of amount (called the residual), to complete the transaction.
• The monthly payment schedule reflects an interest charge for the financing of the phone system.
• A lease cannot be cancelled without penalty and you will need to enter into a separate service agreement for the equipment with your phone dealer.
• The taxation treatment of the telephone system will be related to the depreciation schedule for the equipment and the interest component. You should consult your tax advisor for more detail on this.

Rental

• One of the main advantages of rental is you reduce the obsolescence risk on your phone system as you do not own the asset. At the end of the term of the agreement, you can either upgrade your telephone system to the latest technology or negotiate a reduced rental on your existing equipment if it still suits your requirements.
• The monthly rental payment will usually be more expensive than a financial lease;
• The rental agreement will also include early cancellation penalties.
• If you require service support on your equipment, the service charge can be built into the monthly rental fee.
• Taxation treatment is simpler with the monthly payment fully expensed.
• You need to check that additional handsets and other expansions you will require during the rental term, can be easily added to the rental agreement

What to Finance

• You can finance the total cost of the system including software applications and installation although there are guidelines on the software and installation cost as a proportion of the total finance amount.
• Phone system dealers will have relationships with finance providers and will usually give you the option of renting or leasing the telephone system in their sales proposals.

Bundling

Another form of finance option that is available for business telephone systems is called bundling and involves an agreement to rent a telephone system linked together (“bundled”) to an agreement to use the telephone network services of a specific Telco. The benefit of this bundling is a reduced cost to you compared to entering into these agreements separately.

• The bundling discount to you is usually provided by a credit on your monthly call charges provided your overall call costs reach a minimum level which is determined by your call history from previous telephone bills. Some bundling products provide the bundling discount as percentage discount on the cost of your calls.
• Not all dealers provide a bundling option while there are some dealers who specialize in bundling all office products (phone systems, copiers, IT equipment…) with telephone network services
• Bundling can reduce your total telecommunications costs but there are plenty of traps as well:
• The rental payments for the telephone system can be inflated – make sure you identify the actual cost of the phone system so you can check if the rental payments are  reasonable;
• Ensure the minimum call spend that determines when the call credits apply is reasonable based on your past telephone bills and any promised reduction in call costs;
• Get the dealer to provide an analysis of your call costs under the new agreement using the calling patterns from previous bills so you can identify the likely savings or additional cost to you;
• There are some very aggressive companies who market the benefits of bundling but don’t have the expertise to ensure you get the telephone system that suits your needs.
• Check the bona fides of the company offering the bundling to you and identify who is installing and providing after sales support for the system.
•  Get some references of customers who have purchased a bundling product from the dealer.
• Also make sure you get a dealer that does not provide a bundling offer to give you a proposal for a telephone system as well.