Making Sense of It All: Data Tracking for Equipment Leasing Companies

by Sinéad Murphy

Sinéad Murphy, CLFP, is currently lease servicing manager at ECS Financial Services. Murphy has been with ECS for 18 years, with the past 12 years concentrated in the equipment leasing industry. Murphy works extensively with clients to service and manage their leasing portfolios and to assist in the development of procedures and practices aimed at increasing efficiency in the management of lease portfolios and related data. In addition, she has experience in personal property tax and sales tax compliance. Murphy is an active member in several leasing industry associations, including CLFP, NEFA and ELFA.

It is exceptionally vital that equipment leasing companies maintain sound data and implement proper asset tracking strategies. But what types of data are most important and how should it be collected? ECS’ Sinéad Murphy offers some advice.

The equipment leasing industry has grown exponentially over the last few decades, with more than $1 trillion dollars of equipment now being leased in the U.S. annually. As lease portfolios continue to increase in size and complexity, the task of maintaining sound data and records has become more important than ever. Proper asset tracking is especially important in this environment, as accurate reporting for income taxes, sales tax and property tax are all dependent on it.

Additionally, companies have begun to realize that analyzing different types of data can help them make meaningful decisions and aid in driving their success.

As a result, the creation—and proper management—of a data tracking system has become a critical part of business success for many in the industry. But what data should companies be tracking and how should it be documented? That varies on a company-by-company basis, but given my own time in the industry, I suggest following a few key guidelines.

What Level of Detail is Useful?

Equipment leasing companies range in the level of detail they want to maintain when tracking their assets on lease. Some companies go so far as to track each mouse that is leased with a computer separately. For other companies, this level of detail may seem unnecessary, and they may track all equipment being leased on one agreement as a single asset.

In order to determine the best policy for your company, it is important to ask yourself several questions at lease inception:

Are the assets on this lease in multiple locations?

The location of assets on lease, as well as the classification of the transaction, drive the income, sales and property tax treatment for every transaction a leasing company makes. If there are multiple assets included in one lease, and they are in different locations, it is a good idea to track the assets separately, by location.

Additionally, tracking assets by location provides valuable geographical data so that your company can analyze data such as yield, defaults and returns by state.

Are the assets on this lease all the same asset type?

Different types of equipment may be subject to varying tax rates or exemptions for sales and personal property tax purposes, even if they are in the same location. For example, your lease might contain both computer hardware and computer software. While all in the same location, these assets could be taxed differently. Also, if they are held on tax operating leases, they may be subject to different depreciation rates and lives. In this case, it makes sense to track the assets separately.

What type of lease is this?

Even the type of lease can drive what level of detail you record. For a fair market value lease that includes the option for the customer to either purchase the equipment at the end of the lease or return it, on an asset-by-asset basis, it may make sense to track each asset individually. Assets may be sold or returned piecemeal, and tracking them individually will make recording and reporting dispositions at lease termination more efficient.

When conducting this level of analysis, it also makes sense to look at the type of equipment being leased. Multiple high priced assets held on one lease, with fair market value purchase options, are more likely to be purchased piecemeal as opposed to other assets, such as computers and peripheral equipment which would more likely be purchased in bulk. On the other hand, for conditional sale leases where title is transferred at the end of the lease, individual asset tracking may not provide much benefit.

Documenting the Findings

Generally, the best practice for documenting lease asset data is to use a standardized form or checklist to identify all of the pertinent data to be input and tracked at the initial lease booking. This can be something as simple as a fillable PDF or word document with fields for all of the relevant data you want to track.

Either a final electronic version or a hard copy should be included with your internal lease documentation. Larger companies that can shoulder the expense of customer relationship management (CRM) software may choose to record this information in their CRM system instead.

Along with developing a standard booking form, it is also a good idea to require an independent review and approval of the form prior to booking. While the additional time may seem excessive, it is important to remember that mistakes at the initial booking can cause large headaches down the road. If one person compiles the necessary information for each new lease, and a second person reviews it, these errors can be reduced and/or avoided altogether.

Finally, a standardized form or checklist should be developed to keep track of any changes or renewals that occur during the life of the lease, including all relevant information needed to document any changes. For example, an asset may be added to the lease during the lease term. In this case, the change form should identify all of the data affected, which may include the vendor, equipment description, new payment amount, lease term, residual value and/or depreciation method. This document should include the same level of detail that the original lease booking form included.

Data as an Operational Improvement Tool

The use of data analytics has been on the rise in the equipment leasing industry as a means of improving business performance. In addition to the asset tracking data discussed above, there are additional data points that, when analyzed properly, can aid in this type of operational decision-making.

This may include information about the leases you book, such as the sales representative involved, sales office, vendor, funding source, client, industry and more. Most of this information is already at your fingertips at lease booking, but may not be utilized to its fullest potential in your business today. If this information is specifically identified as part of your lease booking process and separately tracked, it can be analyzed to aid in operational decisions.

For example, you may wish to review the performance of a particular sales representative by reviewing the default rate of leases they brought to the company. Or you may want to analyze what industries have produced the highest yield when you lease equipment to them.

If you are separately tracking this information from inception, the analysis of these types of data points—and many others—can be effortless. Thoughtful planning based on available information can result in useful analysis of your company’s performance in a variety of relevant areas.

Using the Data We’ve Collected

Many lease portfolio management systems include built-in functionality to help report on, and analyze, the data you have collected. Additionally, many companies utilize a combination of CRM software and lease portfolio software, where the CRM software can provide a certain level of data analysis. Some equipment leasing companies, both large and small, have even ventured into having customized data analytics software written for their specific needs.

Whether you pursue any of these options, or even just track the necessary information in Excel, it should be clear by now that data analysis has many uses in the leasing industry. Not only does it aid in income, sales and property tax reporting, but it provides valuable feedback to help evaluate and improve the performance of your business.

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