Starting Up a Couriers Business - The Boxby Tips for Survival during a Credit Crunch.
(7) Buy, Lease or Hire - What are the Options for Couriers Looking for Vans?
This has to be one of most frequently discussed topics between couriers and their accountants - what is the best way to finance a new van. Well here we will talk through some of the options, but our advice is generalised, and you should always have a quick chat with your accountant to make sure that the option that you choose is right for your own delivery businesses situation.
There are three main options;
- Buying a van using Cash, a bank loan, or HP, (for comparison purposes here we have used HP as this is the most common)
- Leasing a van, on a Contract Hire
- Renting a van
Buying a Van on Hire Purchase |
Lease & Contract Hire |
Rental Agreements for Vans |
|
| How much Deposit is usually required? | VAT on full purchase price, plus maybe an additional 10% | Typically three months rentals. Although this can be negotiated. | Typically two months rentals. |
| When do I pay the VAT? | Upfront, at purchase | On each monthly payment | On each monthly payment |
| Typical period of payments | 2, 3 or 4 years, your discretion. | 3 years is most common | Totally flexible if you use ongoing rolling contracts. |
| Can I break the contract ? | No | No | Yes, usually with 28 days notice. |
| Can I sell the van during the contract ? | Yes, as long as the finance is repaid and cleared as part of the transaction. | No, it is not your van | No, it is not your van. |
| Who pays for Maintenance & Servicing? | You do. | It will depend, if you have a maintenance contract then this is included in the monthly payments, if you do not have a maintenance contract then you need to pay maintenance. | The company that you are renting the van from. Maintenance is generally included in the rental prices. |
| Will I make a loss at the end of the finance period. ? | If you keep the van until the finance is fully paid, then anything you sell the van for will be your proceeds, towards the deposit for a replacement vehicle. If you sell the van during the course of the finance period, and in particular if you have taken finance over 4 years, you will probably always find yourself in a "negative equity" situation, and would will need to pay cash to settle the shortfall between the vans value and the outstanding finance. |
If you keep the van until the end of the contract then no. You simply pass the keys back and walk away.
If you want to get out of the contract, your only option is to purchase the van to sell it on. This will cost you money, there will be a probably large gap between the value of the van and the settlement wanted by the contract hire company. |
The van is not yours, so you are only paying rentals for the months that you use it. |
| What about mileage charges? | You are buying the Van, so there is no excess mileage charge. However the value of your van when you sell it will be affected by the mileage that it has done. | Your contract will be for a stated mileage. Any miles covered over this limit will be charged, typically at 10p plus VAT a mile. | Usually unlimited mileage, but check the agreement. |
| Any other "Nasties" ? | Until the finance is completely repaid, the finance company retains a claim on the van. | At the end of your contract hire period, the finance company will inspect the van. They will try as hard as they can to find as much fault as possible with the van, and you will be charged for putting this right. We recommend that you get the inspection done before the van is handed back, and then you can fix most of the items yourself at a far cheaper cost than the finance company would charge you. | You probably won't get a new van, it could be up to 3 or 4 years old. You may need to compromise on the make or model of the van. |
| Who do I talk to about this type of finance | Any garage/dealership will be able to arrange a Hire Purchase agreement for you. Your bank can also offer finance in this way. |
Main commercial dealerships tend to have a head office section that processes and arranges contract hires. There are also independent finance companies who arrange contract hires. And most banks have a contract hire vehicle arm. |
Talk to Us; |
| What is the best thing about this type of finance | You own the van at the end of the finance period. You can keep it, sell it, or do whatever you want with it. | You typically pay around 70% of the cost of the van over the contract hire period. | You can terminate the contract at any point with 28 days notice. You are not locked in. |
| What about Tax? | In the year that you purchase the van you can claim the cost (up to £50k for 2008/9) against your tax. | Your monthly rentals will be a tax deductable expense. | Your monthly rentals will be a tax deductable expense. |
The Couriers Checklist for Choosing Courier Van Finance
Here are a number of questions we recommend that you think about to help you choose which finance method is the best one for purchasing your courier vans. These questions are aimed at those people thinking of becoming couriers, setting up their first courier business, but it's also a good checklist for existing couriers and delivery companies to think about, because situations change, and what suited your business a few years back may not be the best alternative for you when you are trying to run a courier and delivery business during a recession.
- Are you happy to enter a finance contract that you cannot get out of without penalty or expense ?
- Are you confident that the van you purchase now will suit your needs fully for the period of the finance contract?
- Do you want to pay lower monthly costs, in exchange for bearing the maintenance costs?
- Is the manufacturer including a warranty or service agreement that will cover all or part of the contract period?
- Do you have the funds to hand to put down a deposit?
- If this is your first courier business - then what will you do with the van if you business isn't sucessfull?
- Do you want a mileage limit? Is the mileage included in the contract sufficient? Are you happy to pay excess mileage rates if you exceed the limit? Or do you want unlimited mileage.
Warranties, Servicing, Parts & Mileage for Courier Vans
Many courier services companies will cover up to 80,000 miles a year. This means that if your van manufacturer has given you a 100k warranty then you are likely to be outside of warranty by the begining of your second year. Remember that the maintenence costs of your courier van will be determined by how many miles you do, so see our article here about the costs per mile of running a courier business. Because if you either buy your van, or have a non maintenance agreement, these costs will be a significant cost to your delivery business.
Also, check what the warranty and service agreements are. If the warranty or service agreement is the very bear minimum that is needed to keep your courier van on the road, then it means that you are going to end up incurring more maintenance costs for your van towards the latter half of your finance or contract.
