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SPRING 2014 EDITION

Forefront

Lessons and Best Practices
for Vendors and Lessors at LegalTech

By Scott McFetters, President, CoreTech Leasing, Inc.

All of the end of the year surveys in 2013 and initial predictions for 2014 point to a robust outlook for the upcoming year-including increased hiring and a gain in demand for services. That's welcome news for law firms and the vendors that service them.

To that end, ALM's annual LegalTech Conference held in New York comes at the perfect time for firms looking to leverage technology to further their business goals. LegalTech is always one of the best conferences in legal and a great way to kick off the year by networking and catching up with vendors showcasing new products, updates and releases. Competition in the legal industry, however, is fierce and making a face-to-face connection often makes the difference in closing a sale.

What are some of the competitive advantages vendors can implement in order to stand out? One strategic advantage technology and equipment vendors can use is offering complete, turnkey solutions to assist their clients in procuring their technology requirements in the manner that best suits their firm. For this reason, many vendors offer lease financing as a solution to their clients, either through their own financing or through a third party lessor.

On the client side, one striking advantage of leasing technology is that leasing can provide not just 100% financing for the equipment and software, but also 100% financing for the associated soft costs including services, training and implementation, etc.

From a financial point of view, leasing is a strategic option for these clients because it provides a monthly expense versus a cash outlay of the total purchase cost. For instance, leasing a $1,000,000 software platform for a firm wide rollout can be converted to a monthly expense; this can be a beneficial strategy because converting that $1,000,000 to a fixed monthly expense conserves cash reserves, keeps bank lines of credit open for short-term use, and cuts out-of-pocket costs for software upgrades while still enabling new projects in the budget.

Doug Doerfler, CFO at Stinson Leonard Street LLP agrees. For his firm: “It's about cash flow. With leasing, there are no large outflows of cash during the year; leasing allows us to keep the payment stream/cash outflow steady.” Leasing also delivers the ability for firms to match cash savings derived from the implementation of a project with deferred cash expenditures over a period of three to five years.

Leasing can also be strategic from the IT viewpoint. It offers an avenue for companies to acquire top-of-the line technology and software at a fraction of the purchase price, provides for 100% financing for services (not just hardware) and for cyclic software upgrades. Leasing also frees IT from the burden of disposing of outdated equipment, ensures access to the most current systems, IT tools, and software versions while eliminating higher maintenance costs for older equipment.

Ted Gerber, Director of Data Systems at Hawkins Parnell Thackston & Young concurs and adds that, “Leasing also provides the inherent option of refreshing all of the technology and equipment at the end of term, and forces the firm to review those technology advances in the market cyclically and consider new options that may have emerged.”

Another persuasive element for the firm's partners when considering leasing as an option, according to Gerber, had to do with liability; leasing provides liability only to the partnership as the lease agreement is with the LLP. “In many bank loan situations,” he adds “a particular partner has to put their name on the agreements.  Leasing spreads the liability more appropriately.”  Doerfler added to this that, “Bank financing limited our firm's ability to draw on our line of credit.”

It may seem like a no-brainer for vendors to offer leasing as a financial option to their clients or potential clients when discussing new technology purchases and software upgrades. Proposing new equipment along with a simple way to finance it greatly enhances your ability to close more business and increase your profits.

There are many benefits to the vendor for offering such options, not the least of which is that independent vendor financing programs make it easier for the vendors to close sales with more flexible terms.  Also, these key factors combine to produce a win-win situation: 

  • Eliminates the capital expense obstacle  by offering monthly payments
  • Increased market status by offering multiple, customized financing solution
  • Brings higher ROI through increased sales
  • Payment calculators available for your market area allowing you to quickly provide client quotes
  • Provide increased level of account control

However, leasing is not just a one-time transaction; it is a long term relationship.  It's in the best interest of both lessors and vendors to be highly selective about whom they work with.  If the vendor decides to bring a lessor into the relationship, here are some best practices we recommend:

  • Be highly selective and do your due diligence.  Both vendors and lessors rely on and emphasize the importance of the reputation of their business partners.  These are relationship-driven businesses.  Both sides are concerned about the professionalism of the sales force responsible for initiating and administering vendor lease arrangements. 
  • Seek lessors with excellent and highly responsive communication abilities, flexibility in solutions offered and predictability and longevity of the management staff.  
  • Forge relationships with vendor-neutral, customer-focused lessors.  Many vendors complain about poor communication, slow turnaround and overall poor customer service once the sale has been finalized.  Best practices, then, are than vendors should forge relationships with lessors that can deliver on clients' ever changing requirements-which can include anything from  delayed payments, step payments, special contract terms, individual contact points, customized lease documents, etc.  
  • Look beyond the least rate factor.  Of course the rates and credit acceptance offered by the lessor are important considerations.   However, these are rarely the predominant factors in maintaining long-term partnerships. In fact, the primary selection criteria implemented by a vendor should be the service level and experience of their potential business partner, along with the strength and transparency of the Master Lease Agreement.  

As a final point, unfortunately there are some lessors out there who don't play fair and have onerous terms and conditions buried in their lease documents.  Watch out specifically for terms like these:

  • Fair Market Value on Software
  • Fair Market Value language that is determined solely by Lessor
  • Undefined Quarterly Interim Rent/ Quarterly Commencement dates
  • 7 day window to return equipment at the end of term or the lease extends for 12 months
  • No 'right to use'  the Software at the end of the lease
  • Pro-Rata 1/30th Language
  • Long term automatic extensions if your notice date is missed
  • Notice windows that only allow you to give notice of intent between 90 and 120 days prior to the end of term, or some variation thereof
  • Requirement to return equipment in the original packaging material and with original manuals

you find yourself seeing onerous terms in your master lease and supporting documents from your lessor, it is time to look for an alternative solution-what would have happened if that contract had been signed?  Leasing, when best practices are implemented, is seen as a tremendous advantage to your law firm clients.  A vendor who develops a reputation for delivering leases with these terms buried in their documents will not be in business for the long term.

Originally published in Legal IT Professionals, February 2014


CoreTech Leasing

CoreTech Leasing structures and provides operating and capital lease solutions to more than 200 law firms nationwide. CoreTech's full disclosure practices, flexibility and consultative approach has enabled them to build long-term leasing partnerships with many of the nation's leading law firms. Click here to learn more.

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