Lease accounting software has become a necessary expense for most organizations due to the new IFRS and FASB lease accounting standards. However, choosing wisely can save more money in operating expenses than your lease accounting compliance efforts will cost.
What will FASB/IFRS compliance cost you?
For the vast majority of organizations, the effort to get ready for compliance with the new FASB and IFRS lease accounting standards will have a significant cost impact. According to research by EY, estimates range from $500,000 to $5 million. And furthermore, most organizations have not even budgeted for this expense.
Because compliance is mandatory, many will simply assume this cost must be absorbed as a necessary expense. But here’s what you may be overlooking: lease accounting software can help reduce operating expenses so much that it more than pays for the cost of your lease accounting implementation efforts.
Seem too good to be true? It’s not. Keep reading and we’ll explain.
Lease accounting software is a cost of compliance… or is it?
Probably the biggest expense associated with lease accounting compliance is the cost of gathering and aggregating all your lease data. That’s especially true for global and distributed organizations with large leased portfolios.
Another expense that’s mandatory for the vast majority of companies is the cost of lease accounting software. The new standards have increased the complexity of lease accounting to the point where it’s no longer possible to continue storing data and producing calculations in Excel spreadsheets (as most have done until now).
However, the cost of lease accounting software may not turn out to be an expense after all, depending on the technology you choose. In fact, choosing the right product can be a net gain for your organization due to the operational cost reductions you can achieve.
Let’s explore exactly how that’s possible with the best lease accounting software.
5 ways lease accounting software pays you back
Before we get into the details, there’s one caveat you must be aware of: not all lease accounting software solutions can provide these benefits. In fact, those that only perform lease accounting calculations can’t.
These cost-saving benefits come from having an integrated solution that combines lease accounting with end-to-end lease management.
1. End overpayments on variable rents and CAM charges
For retail companies, variable rent payments are a way of life. Lease payments vary month to month because they’re based on a percentage of sales. That’s only one example of many different scenarios where property lease payments change regularly. Then there’s common area maintenance or CAM charges: the ongoing maintenance changes that the landlord passes on the lessee. These are often subject to change over the term of the lease.
These variable payments can be a logistical nightmare for accounts payable teams, who have to figure out what exactly they need to pay each month. When that’s done manually (or not calculated at all, but simply paid based on the landlord’s calculations), you’d be amazed at the costly mistakes that result.
When your lease management & lease accounting software documents all lease terms, automatically calculates the correct payments every time and integrates with your AP system, you save money by preventing overpayments.
2. Avoid paying expenses that are the lessor’s responsibility
When your lease terms are not easily accessible to those making decisions at ground level, it’s surprisingly easy to end up paying for things you shouldn’t. One simple example: you pay to get a leaky roof replaced, when in fact the lease clearly states that this is the landlord’s responsibility. That happens because the facilities staff handling the issue has no access to the terms of the lease.
When you have a single lease management & lease accounting software solution that’s used by everyone from facilities staff to procurement to accountants, all your information is kept up to date and easily accessible. That prevents costly mistakes.
3. Stop making automatic payments on expired leases
When your AP system is not integrated with your lease management & lease accounting software, payments can continue going out long after leases expire. If you’ve got a large leased portfolio, especially lots of shorter term equipment leases, this kind of mistake can quickly add up.
With an integrated solution, your payments automatically stop when the lease’s end date is reached. No one has to remember to cancel the payment.
4. Avoid missing lease option deadlines
Property leases often include options to renew at a favorable rate, provided you exercise that option by a specified date. As real estate professionals know, missing just one of those deadlines can cost you millions on a single long term lease. That’s because you lose the chance of that favorable rate and then are forced to pay market rate for what can be several years at a minimum.
Your lease management & lease accounting software can alert you when those critical lease dates are approaching, so you have enough time to carefully consider your options and make the most cost-effective decisions.
5. Negotiate better lease deals
When all your lease data is available in a single source of truth (your combined lease management & lease accounting software) you have a gold mine of business intelligence that you can use to drive better lease deals. You can easily access terms of similar leases and use that data during your negotiations to get more favorable terms that can result in huge cost savings.
The fact is, there are significant benefits to be gained by the effort to comply with the new lease accounting standards. Choosing the right lease accounting software puts you in the best possible position to actually reduce expenses across your organization instead of adding to them.