Accounting LeaseAccelerator

Lease Accounting Moves Beyond Compliance: A Catalyst for Process Automation

Sponsored by LeaseAccelerator

Leasing is complex, but the shift to compliance standards has made leasing a catalyst for digital finance transformation, using automation to deliver end-to-end process improvements and cost savings.

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The push to achieve compliance with the latest lease accounting standards has required significant effort for most companies, but the good news is that this investment can reap dramatic returns, beyond pure compliance. With many organizations facing slow adoption of digital finance transformation initiatives, the leasing standards may be the catalyst that the industry needs to accelerate digitization and process automation.

Alongside the promise of improved management comes the opportunity to lease more.  Many companies have avoided taking full advantage of leasing, because leasing is complex. Lease management at scale is time-consuming and confusing, and without centralized control, automation and management, many simply shy away.

To help tackle all of this, there is a new breed of lease management solutions – Lease Lifecycle Automation (LLA).  These solutions evolved from early compliance tools and now offer the potential to drive down cost and risk by automating every lease from beginning to end with standardized processes.  

This couldn’t have come at a better time; businesses faced with the economic uncertainty brought on by the global pandemic are now highly focused on conserving and preserving cash. Liquidity is paramount, and in the search to generate additional free cash flow, some CFOs are discovering that Lease Lifecycle Automation can have a surprising impact on their balance sheet. And, with teams now working remotely, Lease Lifecycle Automation has the added benefit of enabling distributed management of complex global lease portfolios.

Leasing complexity and technology hurdles

Leasing can be a highly complex process. The average S&P 500 company typically carries over $1 billion of leases on its balance sheet with 70% of leases changing each year. To make matters even more challenging, information is often decentralized and difficult to find as leasing is considered to be “local delivery, local service.” It can be easy to lose visibility of changes to a portfolio, manage leases inconsistently and increase firm-wide risk. Adding to the complexity is the lack of procedures and process found at most organizations. According to a recent LeaseAccelerator survey of CFOs, CIOs and treasury executives, over 60% indicated that four or more departments are involved in their firm’s leasing process.

Without a centralized and accurate picture of leasing obligations, it is difficult to produce proper forecasts and generate accurate budgets that lead to the execution of critical business decisions. To get the most out of leasing, businesses need to automate the entire lease lifecycle, starting from the lease vs. buy decision to the last payment made. However, technology issues still plague CFOs. A recent LeaseAccelerator survey found that 34% of respondents indicated that disparate systems are used to manage real estate and equipment lease data separately, and over 20% indicated that technology plays no role at all. The continued lack of technology or reliance on manual spreadsheets is costly. For a portfolio of 100 leases, for example, the cost of a manual approach can be well over $128,000 more per year than if it were fully automated.

Adopting a Lease Lifecycle Automation approach to drive long-term success

With a proper Lease Lifecycle Automation platform in place, businesses are equipped with the visibility and control needed to optimize business processes and manage the complexities of lease portfolio management effectively from end-to-end.

Global power leader Cummins believed that it had 2,500 leases before it started its implementation of Lease Lifecycle Automation. Throughout the initial process, Cummins discovered several thousand more leases, ultimately entering 7,400 leases into a central database. After moving towards a LLA platform, Cummins created a central database of the 7,400 leases and began identifying opportunities for cost savings by systematically resolving evergreen leases, making returns and taking buyouts. Throughout this process, Cummins was able to reduce its total number of active leases to 3,500.

For most businesses, lease management is not a set-and-forget process. Asset types, deal documents and terms are diverse and constantly changing. Increasingly stringent compliance requirements also add to the workload and raise the stakes of getting it wrong. Using a lifecycle approach to lease management can help overcome these challenges by breaking the leasing process into stages and ensuring the right level of automation throughout. Templates and workflows built into lease management platforms allow users to engage with familiar tools while they provide consistent information that is aligned with central policies. Different users can also have different access levels for separation of roles and responsibilities. Ongoing communication with stakeholders reduces the time to gather information and avoids fire drills that lead to stress and mistakes. With an integrated lease lifecycle platform, businesses can have seamless integration between AP, GL and subledgers to keep everything reconciled. The system combines schedules and loads them into the ERP system, even to multiple ERP systems, to automatically streamline auditing and support business decision making.

A new approach to leasing as a strategic financial tool

Ultimately, LLA platforms can help businesses optimize all stages of the lease lifecycle from evaluation and contracting to end-of-term management. In some cases, businesses can save an average of 10% on lease costs through proactive end-of-term management. As businesses increase automation, they can also further decrease the cost of human capital required to support the leasing lifecycle, driving future growth.

Although leasing is complex with multiple compliance standards, constant change and broad impact across roles in the business, companies can lease more and get more out of leasing with a Lease Lifecycle Automation (LLA) platform. With LLA, businesses, both public and private, can manage complexity and take full advantage of the flexibility leasing offers to lower costs and increase cash flow, therefore helping achieve maximum benefits.  For more details on how to improve leasing, download 15 Critical Success Factors for Your Equipment Leasing Program or schedule a LeaseAccelerator demo today.