The Rise, Fall, and Return of the Subscription Model

At 9 months of age I was already toddling. I was taking regular breaks and using plenty of furniture to steady myself, but I was up and mobile. Unfortunately, one of my laps of the lounge culminated in me sitting on top of the VCR. I was sans-nappy, and decided that was the moment to, shall we say, relax. This led to an awkward telephone conversation with a woman at Radio Rentals who laughed – quite mercilessly – at my mum’s reason for needing a replacement.

Why am I telling you this charming family anecdote? While researching this article (that was going to be called, ‘The rise of the subscription model’), I found lots of blogs that suggested the idea of subscribing to a service was an emerging trend. Someone born in the digital age might assume that the subscription model is a relatively new concept made successful by the likes of Netflix, Spotify, Birch Box, or Hello Fresh.

But, because they have gleefully told that story at numerous family gatherings, I knew that my parents were making monthly payments for their VCR and TV back in the 1980s. Sure enough, a little research confirmed that paying a regular fee in return for services or products has been around a lot longer than many people realise.   

The birth of the subscription model

The earliest description of paying for a service in instalments (that I found) dates back to the 1500s when European cartographers were publishing maps of previously undocumented land that was being discovered, occupied, and conquered. The aristocracy and academics were buying these maps, but always in the knowledge that updated editions would be forthcoming as exploration continued. The map publishers asked customers to subscribe to future versions of their maps, and the ongoing payments funded their ongoing explorations and map production.

The most well-known example of an early subscription model is the newspaper and magazine industry which, as far back as the 17th century, was encouraging customers to subscribe to regular publications to cover overheads and delivery costs. Over the years several different types of subscription models have emerged.

Today, for a monthly fee, you can receive a box delivered to your home full of just about any product from socks and make-up to chocolate and your evening meals. Some are mysteries that have been curated especially for you by an ‘expert’, or for a monthly or annual fee you can access exclusive content or events. We can have the latest gym equipment, vehicles, mobile phones, software, and technology, as there are very few items that we need to own to use.

The pursuit of ownership

While paying as we go has been part of our society for so long, we can’t get away from the fact that, in the UK, renting or leasing has been regarded as inferior to ownership. A possible reason for this is that as technology became more affordable, renting/leasing became less common and gradually took on negative connotations; only someone who could not afford to buy something outright would need to spread the cost in that way. Combined with our national perception of property ownership as a symbol of success (not a universal attitude by any stretch), and the concept of renting/leasing became tainted.

However, skip a few frames to today, and our buying habits and attitudes are changing at a faster rate than ever before, more so than many of us realise. We don’t ‘go shopping’ anymore – we ‘are shopping’ at all times. We can make a purchase at any time of day or night, from anywhere in the world with an internet connection. If we cannot afford to pay for it all in one go then and there, we expect to be able to pay in instalments. Maybe we can’t afford £300 or £3,000 today, but £50 or £500 per month for the next 6 months? More than doable.

The rate at which technology moves on, and the fact that we are being marketed to from every direction all day and night, are also major influences on our buying habits. When we buy a product, in a matter of months, a new improved version will be released. We buy products not as long-term investments, but in the knowledge that in a few months or years we will want to upgrade or try something new. There is little point investing in assets that are going to depreciate in value or become obsolete, so paying a large chunk of cash to own something has become less attractive.

The past, present, and future of finance is flexible

It seems that negativity towards leasing in general is fading, but there is a stubborn perception in several industries that suggesting finance to customers will cause offence in some way, i.e., that they will imply they cannot afford to pay in cash. In reality, this is a rather outdated view, as choosing to pay via a subscription model or a finance lease often has nothing to do with affordability.

Customers want convenience and flexibility. They expect to be able to shop and pay in the way that is most convenient to them. They might shop online, on the high street, in the markets, or a combination of all three. They might pay upfront in cash, or they might decide to take out a flexible subscription, or to pay in instalments via a finance deal.  

Service providers that do not recognise the need for greater flexibility are running the risk of lagging behind their competitors. Offering more flexible finance arrangements creates a longer-term relationship with a customer beyond a single transaction, increasing customer lifetime value. This type of arrangement has been working since the cartographers of the 1500s found a way to fund their exploration of the world. It has been enabling individuals, families, and businesses to access the technology they need to thrive, whether that technology is a mobile phone, a VCR or 500 state-of-the-art laptops for their employees.

The subscription model, leasing, and renting technology are not new ideas, and it’s likely that they will continue to benefit both customer and service provider for many years to come.

If you are a business owner wanting to offer your customers more flexible payment options such as a finance arrangement, click here to get in touch.

What’s The Best Finance Option For Me?

We sat down with Bluestone Leasing’s Managing Director, Vineesh Madaan, to go through all the facts and options when it comes to finance to make sure you can make the right decision when it comes to financing your next project. Here’s all you need to know on Finance Leases, Hire Purchase, Operating Leases, Business Loans & Cash.

Finance Lease: 

How Does Leasing Work?

When businesses want to acquire assets, they have several options, they can pay cash or look to finance these via leasing. Leasing works where the finance company pays the supplier for the equipment and in turn then becomes legal owners of the equipment, they then lease/hire the equipment back to the end user, the payments are charged plus VAT, which can be reclaimed as normal.  

What Are The Benefits of Leasing?

There are several benefits to leasing, naturally a big one is retaining cash, why pay out for something upfront when you can pay over time for it. Another significant advantage are the tax savings, Leasing is highly tax efficient method of acquiring equipment whilst spreading the cost of paying for it. 

What Type of Assets Are Best Leased?

Any assets can be financed but the majority must be tangible, some funders only require a minimum of 50% tangible others need it to be 80% plus. The benefit is that a lot of intangible items can be incorporated into the finance. This form of finance tends to suit assets that depreciate in value so can be refreshed at the end of the finance agreement. 

What rates Am I Likely to Pay when I Lease?

This depends on the credit rating of your organisation along with the amount being financed, the better the credit rating and bigger the lend the better the rate. 

What’s the Tax Treatment of Leasing?

100% of the repayments are allowable against taxable income, for example if your taxable profit is £100,000 and the tax rate is 19% you will pay £19,000 in tax, if you were to make £20,000 in lease payments then you would pay 19% of £80,000 i.e. £15,200 in tax, saving you £3,800 in tax. 

What Are the Negatives of Leasing?

You do not or will never legally own the asset, so if asset ownership is your thing then this will not be the product for you. 

What Happens at the End of Leasing Term?

At the end of the agreement, you must cancel the agreement with the funder once this happens rather than to continue to pay rents you can pay a one-off infinite rental to retain uninterrupted continued use of the asset, allowing you to do what you want with the assets. 

Hire Purchase: 

How Does Hire Purchase Work?

The asset is paid for by the finance company, they will want the VAT to be paid up front on the cost of the equipment, this can be claimed back as normal. The finance company then charge a regular payment to the end user, the last payment has an additional option to purchase fee which transfers legal title to the customer. 

What Are The Benefits of Hire Purchase?

You have the legal right over the asset allowing you to claim capital allowances including any enhanced capital allowances that maybe available. Also subject to you making all the payments you will become the legal owner of the asset. 

What type of assets are best bought with Hire Purchase?

Assets that retain their value are generally financed under this method, because at the end of the finance ownership will be retained. Also should the end user want to utilise enhanced tax allowances then they would use this method. 

What rates Am I Likely to Pay with Hire Purchase?

This depends on the credit rating of your organisation along with the amount being financed, the better the credit rating and bigger the lend the better the rate. 

What’s the Tax Treatment of Hire Purchase?

The asset is classed as owned by the company so the end user will claim capital allowances as it would normally do for any other asset it owns, the end user can also claim the interest paid on the finance against taxable income. 

What Are the Negatives of Hire Purchase?

If you do not have any enhanced capital allowances gaining full tax deduction for the purchase of the asset can take an exceptionally long time, also the VAT needs to be paid upfront so needs to be factored into cash flows. 

What Happens at the End of Payment Term?

Once all the payments are made including the fee then the agreement ends and ownership of the asset is transferred to the end user. 

Operating Lease: 

How Does an Operating Lease Work?

The finance company pays the supplier for the equipment and in turn then becomes legal owners of the equipment, they then lease/hire the equipment back to the end user, the payments are charged plus VAT, which can be reclaimed as normal. 

What Are The Benefits of an Operating Lease?

The best use of this type of finance is for assets that have a residual value and where the asset needs refreshing on a regular basis. As the funder has taken a residual value, payments are lower and the asset is handed back at the end of the finance term and a new assets are financed again and so on. 

What Type of Assets Are Best Bought With an Operating Lease?

They have to have a value so the finance company can recover their residual value with a profit. It works well for IT equipment. 

What Rates Am I Likely to Pay With an Operating Lease?

This depends on the credit rating of your organisation along with the amount being financed, the better the credit rating and bigger the lend the better the rate. 

What’s the Tax Treatment of an Operating Lease?

100% of the repayments are allowable against taxable income, for example if your taxable profit is £100,000 and the tax rate is 19% you will pay £19,000 in tax, if you were to make £20,000 in lease payments then you would pay 19% of £80,000 i.e. £15,200 in tax, saving you £3,800 in tax 

What Are the Negatives of an Operating Lease?

You will never own the asset, whist your payments are lower, you will need to re-invest on a regular basis and if you want to retain the assets the costs would be higher than a standard finance lease. 

What Happens at the End of Payment Term?

The assets are returned to the finance company where fair wear and tear is allowed, if there is any more damage the cost will need to be covered, alternatively the finance company can be paid out of their residual for continued use, this will be an expensive option. 

Business Loan: 

How Does a Business Loan Work?

A loan as it sounds is where a company is financially assessed and if they qualify a funder provides them a loan in return the company make regular repayments to cover the loan and interest. 

What Are The Benefits of a Business Loan?

A loan allows the business to use the funds for anything so does provide greater flexibility. 

What type of assets are best bought with a Business Loan?

Any as the loan is paid to the business for them to use as they wish. 

What rates Am I Likely to Pay with a Business Loan?

This depends on the credit rating of your organisation along with the amount being financed, the better the credit rating and bigger the lend the better the rate. 

What’s the Tax Treatment of a Business Loan?

For the loan itself the interest on the repayments is deductible against taxable income. Should the loan be used to purchase an asset then capital allowances can be claimed as normal. 

What Are the Negatives of a Business Loan?

Loans may require additional security. It can also tie up main bank lines of credit reducing the ability for future growth. 

What happens at the end of payment term?

Once all the repayments are made then the loan just ends. 

Cash: 

What Are The Benefits of using Cash?

Saves paying any interest or taking out any debt. 

What Are the Negatives of using Cash?

Cash is key for any business to survive so retaining cash is key, utilising all your cash when things could be financed is not safeguarding the future of the business. 

Get in touch to speak about the best way to finance your next project.

The Bluestone Approach

At Bluestone Leasing we take pride in our close relationships with you, our partners.

By taking the time to get to know you with face to face meetings and regular industry updates you can be assured that we will work to find the right solution for your client.

When you introduce us to your customers we look to gain a full understanding of their projects and business. This understanding of how your customers businesses are modelled helps us to structure a finance facility that is as tax efficient as possible.

As there are a number of different finance agreements that your customer can choose from it’s not as simple as sending them an email and looking at their website to find the best solution, a face to face meeting allows us to ascertain the information we can not gather without speaking with them.

Our aim at Bluestone Leasing is to deliver the best value for our partners, including:

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If you have any questions or would like to discuss a specific project give our team a call today on 01924 248800.

Finance For Your Classroom Technology

Bluestone Leasing can provide funding for all of your classroom technology requirements.

Our education finance option for the digital classroom can include all project costs funded on our fully compliant (IAS17) operating lease facility. Your dedicated account manager at Bluestone Leasing will provide you with transparent and ethical documentation as well as expert advice throughout the process. This allows you to create a fully integrated learning environment whilst keeping control of your finances with fixed and regular payments.

You might not know that, as well as financing the hardware and audio visual equipment for your classroom, your finance agreement can also include services, installation, training costs and software costs*

With access to over 40 specialist funders (the largest panel in the UK) and a dedicated technology team to guide you through the process we are confident you will find the ideal finance options for your classroom technology needs.

If you have any questions or would like to discuss a specific project please get in touch with our technology team on 01924 248811.

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*these need to form part of an overall project.

Sale & Leaseback Explained

sale and leaseback

Have you made a purchase in the last three, six or 12months without taking advantage of the benefits of leasing?

If you have made a purchase within the last three, six or 12 months; or potentially even longer for larger equipment and machinery, and paid cash you can still take advantage of the many benefits available to you by using leasing.

Bluestone Leasing can arrange a sale and leaseback solution for you, allowing you to carry on using the asset whilst freeing up the capital to deploy elsewhere and work for you.

Other Benefits of Leasing

Leasing benefits

Alternatively if you have any planned capital expenditure for this year, Bluestone Leasing can offer you a payment option that will allow you to retain the cash for use elsewhere, unlock great tax benefits and spread costs in line with your return on investment.

If you are a customer wishing to discuss leasing options further give the Bluestone Leasing team a ring today on 01924 248812.

 

 

Funding for Software Projects

software leasing, finance

Are you considering upgrading, renewing or growing your software estate?

Would a large outlay of cash have a detrimental effect on the cash flow of your business?

Then Bluestone Leasing can help. We are software finance specialists and with our panel of over 40 funders you can be certain we will secure you the best terms available.

We fund all brands and types of software licences, including:

  • Microsoft Licenses – OVS, CALS, SQL, Office, Dynamics
  • Adobe Creative Cloud
  • Security – Symantec, ESET, Sophos, etc.
  • Design & Manufacturing Software
  • ERP
  • CRM
  • Clinical Research
  • Bespoke Solutions

What about Consultancy costs? Professional services? Don’t worry, we understand that software deployments, like other IT projects, can often include a proportion of service costs. We can wrap all of your project costs into one facility – complete funding for your entire expenditure.

The Benefits

Tax Savings – Finance lease agreements are highly tax-efficient; meaning the repayments (including any interest) are 100% tax deductible.

Fixed Costs – Your costs are fixed for the entire term, and the VAT is spread too, meaning no large capital outlay. Why pay in full, up-front for something that will return its value over time?

Strategic Approach – Using a finance solution allows you to adopt a strategic approach to your software investments moving forward, treating your costs more like a managed service than a large, and often ad hoc, capital outlay.

So, if you’re a customer wishing to discuss a project, or you are a partner wishing to offer your customers a powerful alternative to paying cash for software and IT contact Bluestone Leasing on 01924 248811.

Benefits of Leasing for Your Small Business

Here’s the scenario:

You own a small café, you’ve been open for just over a year and business is booming. You’ve just received favourable reviews in the local press and food bloggers can’t stop raving and tweeting about your unique eats. You’d love to be able to expand your business by investing in new kitchen equipment, but your current budget doesn’t allow for this purchase. What do you do?

Here’s the solution:

Finance your kitchen equipment using leasing. In previous blog posts we talked about the type of assets Bluestone can lease, including kitchen equipment, but we haven’t really focused on the benefits that leasing can bring to your business.

The most obvious advantage of leasing over cash is that there is no large cash outlay upfront. Why should you pay upfront for assets that can only provide a return on your investment over time and depreciate in value?

Here are some other great benefits of leasing:

  • Major Tax Benefits – Lease payments are fully tax deductible for private organisations.
  • Ease of Budgeting- Your payments are fixed throughout the term of your lease which allows for easy and more accurate budget projections.
  • Ease of Decision Making- You can make investment decisions based on your needs not your budget constraints.
  • Make Your Capital Work For You- Now that your cash isn’t locked away in depreciating assets you can use it elsewhere for higher returns.
  • Flexibility- Leases are totally flexible. You can determine the term, frequency of payment and the structure to suit your exact needs.
  • Manage obsolescence- Leasing helps you refresh your assets strategically so, for example, technology assets never face redundancy and you always have the latest equipment.
  • VAT – Leasing allows you to spread the cost of VAT which is paid in instalments rather than as a lump sum upfront.
  • Turnkey Solution-Leasing allows you to build all of your costs into the lease to maximise your benefits even further.

If you’re interested in finding out more how leasing can benefit your business, please get in touch with us on 01924 248 800 or email us at info@bluestoneleasing.com