The salesman is relieved – you’ve just signed a lease for a new copier contract. Shiny new copiers, with an array of impressive features are liberally distributed across your offices. The salesman has told you that you have the deal of the century because of the economically challenging times we live in. You are quietly pleased with yourself because you managed to beat the salesman down. Or did you?
How much are you really paying for your copier contract?
Horror stories abound, such as a school having spent £35,000 on a £1,000 photocopier, and a company whose costs trebled in just two years despite usage staying static.
The reality is that too many copier/printer contracts have either been oversold or are not fit for purpose and costing the user significantly more than it should. Although the industry has improved its transparency in recent years, many issues remain:
- Existing contracts overwhelmingly disadvantage the client.
- There are still dubious sales practices within the document management sector.
- Excessive overcharging on copier rates for mono and colour pages are common.
- Contracts have been unnecessarily extended to favour the supplier and are expensive to exit from.
- Total cost of ownership is unknown.
- Lease contract T&C’s are extremely complex and should be treated with caution.
- To maximise competition, contracts should be specified and tendered where feasible.
What can you do?
Understand what your requirement is and scope out the necessary specification both technically and commercially, even if your installation is relatively small.
Compare the cost of leasing against the cost of purchasing, but make sure you’re comparing like for like. This can include whether different equipment models have a similar level of functionality and whether options include extras like maintenance and supplies. As with any financial product, companies should know the Total Cost of Ownership (TCO) incurred with the transaction.
Things to look out for:
Memorandum of Variation – Evergreen Clauses and Renewal Options
Copier leases should be some of the simplest financial documents that a company will ever execute, but too many businesses don’t understand what they are signing. There are a variety of hidden ‘traps’ that organisations are tripping over when executing their new copier leases – but are avoidable if you know what to look for.
Costs are driven up through a review practice known as a ‘memorandum of variation’, which in effect resets the length of contract from the date of amendment.
Customers are often signed up with the promise of new or upgraded equipment as a ploy to get them to sign up for contracts that only benefit the seller. Once companies realise they have been mis sold, they invariably have to make large payments to cancel so-called ‘evergreen’ contracts – an agreement which is automatically renewed after an agreed maturity period.
Clients need to understand what an evergreen clause is because many copier contracts have one. In most cases, the wording goes something along the lines of “this Agreement shall automatically renew for another one (1) year term, unless either party provides notice to the other of its intent to terminate this agreement not less than thirty (30) days before the end of the then-current term.”
There are a variety of different names for the evergreen clause, but it is the sellers desire to keep the contract going for longer than the original contract duration. You need to understand how the contract you are signing works against you.
End of contract termination – return and inspection fees
In virtually all copier leases, the lessee has the option to terminate the lease agreement at the scheduled maturity date as long as the lessee notifies the lease company in writing. Usually, these instructions must be sent somewhere between 30 and 90 days prior to leases original maturity date.
The cost to return the equipment to the lease company is generally the lessee’s responsibility. To avoid expensive return fees, many lessees arrange to return their devices via their own shipping method. Increasingly, there is a lease return inspection fee. Even if you pay to return the device by your own methods, sellers are charging expensive fees per unit to inspect each device and wipe any data that may be stored on it.
Contracts – Do’s & Don’ts
- Before entering into any agreement check that you know:
- What services and maintenance you will receive?
- Whether there are any minimum/maximum usage requirements
- Whether any costs will be incurred if limits are exceeded
- The price per copy per page*
- Which toners are included?
- The cost of purchasing extra toners if necessary.
*If the proposal refers to cost per image then this needs to ring a very loud alarm bell. Unscrupulous dealers often configure MFD’s to charge 4 times for a single colour print. The safer term to insist on is per “page” or “print”.
When signing a service contract, pay particular attention to the following:
- Are there additional toner charges if you are a heavy toner consumer?
- Do they charge for scans?
- Are the annual increases fair?
- Is there an annual “admin” or “general” charge?
Points that should be included in your service agreements are as follows:
- Spare parts
- Labour as required
- Free call outs
- Repairs within a certain response time
- Regular maintenance and servicing
Toners (for some suppliers)
Remember the supplier only talks of two simple charges – a monthly lease charge and a cost per copy, but there is a lot more to consider. Some of the points raised above are only the tip of the iceberg. Auditel are experts at advising clients at both unpicking ambiguous leases and renegotiating new contracts.