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Beware signing-on fees, says Venson

Securing new contract signing-on fees may seem like a good deal for operators but is likely to be a false economy, according to Venson.

Securing a signing on fee can seem like good deal for procurement teams but is a false economy according to Venson.

Although leasing and fleet management firms regularly award such fees – also known as a ‘golden hello’ – to operators, Venson says the practice means fleets are leaving themselves exposed to future price rises that are virtually impossible to challenge.

Managing director Samantha Roff explained: “Procurement departments regularly speak of ‘locking down’ a contract, however, there is very little that is ‘fixed’ in a vehicle leasing contract.

“There will be many legitimate reasons that vehicle leasing and fleet management companies can apply price changes. These include manufacturers introducing price rises, residual values reducing, changing interest rates and the cost of funding varying. In addition, there will be changes in service, maintenance and repair costs, as well as the likelihood of discount terms the leasing companies receive from manufacturers altering.”

All these factors can result in ‘rate creep’, when the monthly rental costs gradually increase, and mean that over the life of a three or four-year contract, the supplier can recoup the cost of any signing-on fee without fleets easily being able to challenge them on monthly rates.

“Fundamentally, fleet vehicle procurement is completely different to businesses procuring other goods or services. It is virtually impossible to think of another product or service that will be acquired by an organisation, the price for which will likely change on a daily basis due to there being so many variables,” added Roff.

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Natalie Middleton

Natalie has worked as a fleet journalist for 16 years, previously as assistant editor on the former Company Car magazine before joining Fleet World in 2006. Prior to this, she worked on a range of B2B titles, including Insurance Age and Insurance Day. As Business Editor, Natalie ensures the group websites and newsletters are updated with the latest news.