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The start point for the best source of fleet information |
You've picked a shiny new light commercial vehicle, so now's the time to raise the cash for the purchase and arrange suitable insurance cover.
Unless you're shopping at the bargain basement end of the market, acquiring a van usually involves arranging finance.
Good old Hire Purchase (HP) remains a popular option for many small and not so small businesses. Typically, the monthly payments are fixed and predictable and, once you've made them all, the vehicle is yours to do with what you will.
If cashflow considerations mean you need to keep your monthly outgoings as low as possible, then you can agree to pay off the remaining balance with a lump sum - often referred to as a balloon payment - once the agreement has run its course. If your business is seasonal you may be able to negotiate a monthly payment pattern under which you pay more when plenty of cash is coming in and less when trade is slack.
Tax relief can be claimed on the interest charged, but many registered businesses may view the VAT position as a drawback. You have to pay the lot in advance as a lump sum and although you can obviously claim it back, it takes time - and that's going to strain cashflow.
Some finance houses will fund the VAT payment and you repay them by adding a bit extra to your monthly instalment. While that's good news for cashflow, it means you are paying interest on the sum concerned.
From time to time van dealers offer 0% finance packages, but beware. They usually involve a substantial deposit and the balance may have to be repaid over a painfully short period.
Remember, too, that the penalties for early termination of an HP agreement are capable of making your eyes water.
Contract purchase is a variation of HP that can include a maintenance package within a fixed monthly payment. Typically, the agreement lasts three or four years, and payments are calculated using the difference between the original purchase price and a guaranteed future value. At the end of the agreement you can make the final payment and keep the van; sell the vehicle and pay off the guaranteed future value, or just hand the van back.
Contract hire, sometimes referred to as an operating lease, has a number of advantages. The big negative is that you have to hand back the van at the end of the agreed contract period (although agreements can usually be extended) but at least this means your monthly payments will be lower than they are with HP.
You don't have to pay all the VAT in advance either - it's paid on the monthly instalments which can be charged against your taxable profits. Maintenance is often included, allowing you to predict a big chunk of your costs over the next three or four years.
Many SMEs (small- to medium-sized enterprises) are nervous about contract hire, however. They fear three things: that they will be
heavily penalised if they have to cancel the agreement early; that they will be billed for every minor scratch and stone chip when the van is returned to the lessor; that they will be hit equally hard if their vehicle clocks up more than the predicted annual mileage agreed at the start of the contract.
There's no denying that early cancellation penalties can be eye-watering painful, often equating to several months' worth of instalments. Their impact may be mitigated, however, if the vehicle concerned is a standard model the finance company can easily place with another customer. The lessor may also look rather more kindly on you if the reason for the termination is that you need to acquire a bigger van and you want to acquire it from them.
Make sure you find out exactly what the premature cancellation penalties are before you sign on the dotted line. Business is rarely predictable, but if you believe you may need to bow out before the agreement comes to an end, then don't enter into it; rent a van instead as it can be handed back at a moment's notice.
Where stone and chip damage is concerned, many lessors have illustrated guides to what constitutes fair wear and tear. Ask your chosen finance house if it does so before you sign up and ensure you inspect a copy if it does.
What you'll probably find is that the odd minor scratch or chip will be ignored, but a big crack in the windscreen and dents all down both the van's sides won't be. They'll need to be sorted before you hand back the vehicle. If you don't, the lease company will arrange to have the repairs carried out itself; and send you the bill.
As for overshooting mileage targets, it makes sense to keep a close eye on the odometer and to notify the lessor in advance if it looks as though the target is going to be breached. If that's the case, then it may be possible to re-negotiate the deal and avoid a hefty bill at the end of the lease period.
At the same time as thinking about finance you'll doubtless be thinking about insurance. These days that's likely to involve searching for the best deal possible on the internet - visit our sister title What Van?'s website at www.whatvan.co.uk for some helpful pointers - or speak to an insurance broker.
Good ways of keeping the cost of cover down include insuring your vehicle for named drivers only - that can cut your premium by as much as 20% - and ensuring that nobody under the age of 25 gets behind the wheel. Underwriters view male van drivers below the age of 21 with particular disfavour.
Locking your van in a garage or your yard - or simply parking it on a driveway - can cut premium costs by up to 5% and fitting a Thatcham-approved alarm may be rewarded by a 5-10% cut. Thatcham is the Motor Insurance Repair Research Centre in Berkshire that sets industry standards.
Investing in enhanced security is seldom a waste of money, so you might want to think about having some supplementary locks fitted. There are plenty available.
If you own an old van then you could consider buying third party, fire and theft cover only, saving yourself a handy 15%. While that's tempting, remember that if you write your van off by driving it into a lamp post and the accident is wholly your fault, then you won't be able to claim on the policy.
Make sure your policy includes Uninsured Loss Recovery (ULR) cover. If you're involved in a collision, and it wasn't your fault and you need to hire a van while your own workhorse is being repaired, then ULR allows you to recover the cost and any other uninsured losses from the third party responsible.
If your van is written off in an accident or stolen and not recovered, and it's on finance, then you may be in for an unpleasant surprise. There's every likelihood that your outstanding finance debt will end up being significantly more than the sum paid out by the insurers.
That's why 'gap' insurance makes such sound sense. It's so-called because it bridges the gap between the two sums. The last thing you want is to be paying for a van you no longer have while struggling to fund its replacement.
There are a host of finance and insurance suppliers in the marketplace that specialise in commercial vehicles. Competition is rife, so don't simply accept the first quote - shop around.
The internet is a very useful starting point and your accountant, if you have one, should be able to offer advice on the most tax-efficient form of finance for your circumstances.
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