September 29, 2015

How to avoid end-of-contract ‘surprises’

Car lease recharges make cost control and communication essential

Recharges from contract hire and leasing companies for end-of-contract damages have fallen on average over the last 12 months, but there is still a compelling need for careful management if punitive charges are to be avoided.

Last year’s FN50 survey of the UK’s largest leasing companies revealed that the average end-of-contract recharge for excess wear and tear had reduced to £273.60, a slight fall from last year’s £278 per vehicle, which was the second highest on record. Some 35% of all leased vehicles returned now attract this type of wear and tear recharge.

Average excess mileage charges were £438.50 compared to £507 per vehicle in 2013, the third highest on record, with 21% of returned cars incurring a charge, compared to 25% in 2013.

According to the leasing industry’s umbrella body, the BVRLA, end-of-contract damage is the biggest cause of dispute between leasing companies and their customers, and is one that requires regular communication, better driver education and sound management.

Whilst contract hirers generally abide by the BVRLA’s ‘fair wear and tear’ guidelines, there are no legally binding rules governing the amounts that can be recharged for vehicle damage, and key decision-makers need to check invoices carefully to see exactly what they are being re-charged for at the end of a contract.

Working together

Over the years, CLM has worked closely with many clients who use contract hire as their main funding method to help them to control end-of-contract charges for both excess wear and tear and excess mileage.

Using a combination of contract re-scheduling and tighter management processes, the company has been able to achieve a significant reduction in clients’ costs throughout that time.

One initiative that CLM has worked on successfully with several clients is to recharge drivers a small administration fee for logging an accident claim where the driver is shown to be at fault.

If the driver fails to report the damage and the vehicle is returned at the end of the contract requiring repair work, then he or she faces an additional charge as a proportion of the excess.

With end-of-contract charges at such high levels, it doesn’t seem unreasonable to expect the drivers to contribute to the cost of repair where they have been at fault.

One major benefit of this approach is that it increases awareness amongst drivers of the need to look after their cars properly and means they are more likely to take more responsibility.

Challenge the recharge

Through tighter management techniques, CLM has queried and rejected a substantial proportion of end-of-contract invoices on behalf of its clients following simple errors by the supplying leasing company, including overcharging and calculation errors.

Contract hirers that CLM regularly works with now raise far fewer end-of-contract invoices, demonstrating that they, too, are performing more stringent checks prior to invoicing.

Long experience has shown that a significant percentage of invoices for wear and tear and excess mileage charges are incorrectly issued and, by careful monitoring and communication, these charges can be brought down considerably.

CLM also offers an inspection service for vehicles when they reach the end of their contract lives, in return for a small administration fee.

CLM practices extreme diligence to ensure that end-of-contract charges to its clients are bona fide and accurate, and believes that open communication with contract hirers is the right approach to help keep costs in check.

This means charges that are transparent and substantiated, in a process which actually benefits them, the leasing company, as well as the client.

Leasing companies now know what CLM will accept and the level of charges it expects to see and, as a result of it efforts, CLM been able to deliver real value to its clients.

Top tips for reducing end of contract wear and tear charge:

1. Introduce regular vehicle checks

2. Keep vehicles clean – bird lime or tree sap can be very harmful to paintwork

3. Park carefully – damaged alloy wheels are one of the most common recharges

4. Ensure the spare key is returned with the vehicle

5. A pre-collection inspection, six weeks before the end of contract, can identify any damage to be rectified

6. Educate drivers on end-of-contract damage and encourage immediate damage reporting

7. Have crash damage repaired immediately – it could have worsened by the end of the contract, otherwise

8. Recharge an element of end-of-contract charges back to drivers, to increase responsibility and awareness

9. Reward those drivers with zero charges

10. Ensure your leasing company has a well-defined end-of-contract damage process with total transparency – don’t be afraid to challenge the recharge

11. Review actual mileage against contract mileage and re-schedule if necessary to reduce or avoid excess mileage charges at expiry.

If you require more advice from vehicle leasing experts contact our team today.