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Vehicle Financing
The financing of assets such as vehicles will always require careful evaluation. It is naive to accept that cash is always the cheapest because of a company's ability to source funds at lower rates than the local finance market.

HIt is never a straight forward equation and business prudence requires that the options be evaluated formally. The options are numerous and like any asset being financed, various factors must be taken into account before selecting the most cost effective method. To mention a few: -

a) Use versus ownership.
b) Optimising cash flows
c) Operational needs
d) Vehicle replacement
e) Up fleeting for increased business.
f) Inflation hedging
g) Balance Sheet considerations
h) Current commercial rates
i) Back-to-back financing costs and opportunities
j) Use of built-in residual values and buy backs
k) The various types of financing related to vehicle type and usage
l) Is it a company vehicle or an allowance scheme?
m) The use off full Maintenance Leasing
n) Period of use and in-service life
o) Flexibility to dispose of vehicles
p) VAT implications

Two major aspects need evaluation - financial techniques and fleet management costs and efficiency. They cannot be totally separate considerations.

Evaluating a financial method requires the use of discounted cash flow techniques taken right the way through to their logical end i.e., evaluating the net positive and negative cash flow investment opportunities. One should not think of the company as a whole as this takes the fleet out of perspective. Rather look at the fleet operations per se. For example the funds not used for cash purchasing could be used to enhance fleet operations such as:-

a) Purchase of better specialised equipment
b) Staff complements / training
c) Workshop equipment
d) In-house computer /management systems
e) Enhanced replacement programmes, etc, etc

This has the effect of combining financing decisions with the implementation of cost efficient fleet management. All banks have the capacity to do discounted cash flow analyses.

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