Leasing makes more sense

Johannesburg, 26 Oct 2022
Zakhe Khuzwayo, CFO, InnoVent.
Zakhe Khuzwayo, CFO, InnoVent.

Leasing instead of buying capital assets that depreciate is increasingly making more and more sense. In the US, according to the Equipment Leasing Association of America, more than 80% of American companies lease some equipment rather than purchase it.

South Africa is behind the curve when it comes to such trends, although leasing computing devices is something that is growing in popularity, says Zakhe Khuzwayo, co-founder and CFO of InnoVent Rental and Asset Management Solutions.

He explains that, rather than taking out a loan or using cash resources for capital items such as laptops or servers that depreciate, companies can now lease them, circumventing the large cash expenditures, hefty down payments and fluctuating interest rates.

This means leasing can make it easy to schedule regular equipment upgrades every three to four years without having to raise the capital necessary to purchase the equipment outright.

On that same point, continues Khuzwayo, cash that would have been used to purchase the equipment outright can be redirected to core business functions or after-purchase expenses. For instance, when it comes to IT, according to Gartner, 80% of total IT costs occur after the initial purchase. A lease frees up capex for ongoing expenses such as Microsoft licensing, security features and software updates.

Leasing also enables companies to move the cost of a capital item to an operational expense, which simplifies tax as there is no need to depreciate the item over the South African Revenue Service-sanctioned timeline, Khuzwayo says.

Another benefit Khuzwayo highlights is that, when equipment reaches the end of its life cycle, companies do not need to worry about selling off the equipment or repairing an outdated machine.

When you own assets, the burden to recycle or dispose of the equipment once it eventually becomes obsolete rests with you. With leasing, however, from reputable lessors such as InnoVent, this hassle is taken out of your hands and falls solely on the leasing company. It’s their responsibility to take care of it, not yours.

Going beyond cost savings

InnoVent also assists with the management of leased equipment with systems in place and asset tracking software put on portable devices. “In this age of working from home, in the midst of endless load-shedding, people are seeking power outlets and WiFi from restaurants and coffee shops.

The office is now anywhere. Businesses need tools to effectively manage their assets wherever they are to avoid theft, manage loss, and keep business operations running smoothly.

InnoVent offers reporting tools such as an online contract information portal and real-time asset tracking technology to ensure the client stays informed of their leased assets and can track and audit their equipment from procurement until the eventual disposal of those assets.

At the end of the typical three- or four-year lease, the equipment is either returned and refurbished or disposed of safely, says Khuzwayo. “Companies don’t need to find storage space to store all these items until they can properly dispose of them to be compliant with environmental, social and governance (ESG) requirements.”

ESG is currently a big business driver and requires companies to look beyond the bottom line to their impact on the communities in which they operate. Stakeholders and shareholder activists are increasingly pushing firms to do good while doing good business.

On another note, it can often be futile to donate these machines as well. Even with the right intentions, old computers donated in the name of charity rarely fulfil their philanthropic purpose as they will soon become obsolete, Khuzwayo adds.

“Not only does leasing take away the hassles of owning PC equipment, but when it reaches its end of life, it can be taken off your hands to be refurbished and eventually disposed of responsibly.”