The Difference Between an Asset-Based and Contract-Based Leasing Platform

Choosing between asset-based and contract-based leasing platforms is not just a matter of semantics — it’s a strategic move that can redefine the trajectory of your business. For decision-makers in the asset finance industry, grasping the nuances of this decision is important when choosing an asset finance platform.

So, how is an asset-based leasing platform different from its contract-based counterpart? Are there factors where the former outshine the latter? Let’s find out.

Asset-Based vs. Contract-Based: What’s the difference?

In a nutshell, it all boils down to one word — granularity.

An asset-based lease management system revolutionizes how you track assets and the transactions around them. Dive into the specifics, and you’ll find detailed insights like lease start and end dates, utilization metrics, inventory management, invoices, and renewal options — all tailored for each individual asset. For example, for an auto leasing business, an asset-based auto lease management platform can go beyond merely tracking the fleet performance to monitoring each car in the fleet for parameters like fuel usage and efficiency, emission levels, predictive maintenance alerts, in-vehicle camera and sensor data, telematics, etc.

But why does this matter in choosing a leasing platform, you might ask?

In a world where flexibility is the currency both customers and businesses trade-in, the granular visibility offered by an asset-based system opens doors to a multitude of capabilities — the ability to provide flexible products and services, dynamic pricing and invoicing, and customized offerings.

Next-gen technologies such as advanced analytics, generative AI (Artificial Intelligence), and the Internet of Things (IoT) thrive on an organization’s ability to record and leverage vast amounts of user-generated data.

This 360-degree view doesn’t just stop at flexibility. It empowers you to make data-driven decisions, gain a comprehensive understanding of inventory and asset utilization, and make informed choices that steer your business toward success.

Contrast this with a contract-based system, which, as the name implies, revolves around transactions at the contract level and everything is finetuned to be monitored and administered within a specific contractual framework. These systems, while suitable for homogeneous asset requirements or straightforward contracts involving one or two assets, are quickly becoming outdated in today’s age where both transparency and flexibility are non-negotiable.

Precision at the asset level

While contract-based systems prioritize contracts as the central object, an asset-based leasing platform shifts the focus to individual assets. This visibility offers a nuanced understanding of your asset portfolio, fostering better business insights that lead to informed decision-making.

An asset-based system excels when you are dealing with complex scenarios that demand flexibility. The asset-based approach empowers you to handle assets differently within the same contract, facilitating unique pricing strategies and varied invoicing methods. By making the asset the central object, this approach focuses on tracking the asset’s lifecycle from its unique perspective, even when a single asset is deployed across different scenarios.

A well-designed asset-based leasing platform will allow you to define contract-level terms along with the added capability to address individual assets within the contract.

Streamlining XaaS and subscription models

Embracing the era of Everything-as-a-Service (XaaS) or subscription-based models can be a challenge for a contract-based leasing platform. The ability to manage assets individually streamlines the monitoring, tracking, and billing processes, which is crucial for adapting to flexible billing structures and metered usage.

Whether you’re offering a subscription model, metered services or both, an asset-based approach ensures agility and adaptability, providing a distinct advantage over the constraints of contract-based platforms.

Consider the possibilities of having the flexibility to price individual assets differently or establish distinct contract terms within a single contract. For instance, some assets might follow a 12-month billing cycle, while others operate on a different schedule. This flexibility extends beyond pricing; it encompasses various terms such as different residual positions on each asset, invoicing methods, and accommodating customer preferences for mid-term modifications and adjustments. This capability not only enhances pricing strategies but also provides customers with the flexibility they anticipate in a dynamic business environment.

Data: The more, the merrier

In the age of data-driven decision-making, an asset-based leasing platform is your treasure trove for business insights. With each asset treated as a unique entity, the platform generates a wealth of data. This abundance of information extends beyond basic usage metrics, offering insights into performance, maintenance needs, and customer preferences – metrics that might not be easily available in a contract-based system.

With more detailed data from customers in asset-based leasing platforms, financial institutions gain a deeper understanding of individual needs, enabling personalized offerings and strategic decision-making. For instance, tracking customer usage patterns can help you build tailored financial solutions, and having comprehensive data on asset performance allows for proactive maintenance planning and overall portfolio management.

Customization beyond contracts and enhanced customer experience

Contracts often confine you to predefined terms and structures. An asset-based platform, on the other hand, provides the flexibility to customize offerings at the individual asset level. Tailoring terms, pricing, and services based on the unique attributes of each asset opens doors to a new realm of client satisfaction and business opportunities.

From an industry perspective, it's all about the details. Many contracts involve a mix of tangible assets and intangible services, requiring a nuanced approach. Comprehensive data visibility offers the flexibility to tailor pricing strategies to meet customer needs effectively. For instance, you might opt for a lower price for the tangible asset, as its value isn't solely derived from one customer or contract. On the other hand, with intangible services, pricing can be structured to maximize returns. Consider a large implementation project: hardware components retain value beyond the contract duration, whereas software licenses or consulting services need to be priced based on their current value. A detailed view of each component in such a project facilitates more flexible pricing and allows for the precise definition of contract terms.

This detailed approach ensures a better grasp of the various components in a contract, facilitating strategic decision-making in pricing and contract negotiations. Keeping things granular makes it simpler to implement changes and modifications, and to manage them—whether it's usage for a group of assets, aggregated usage, or minimum usage per asset.

An asset-based leasing platform is not just about internal efficiency; it directly contributes to an elevated customer experience. With the ability to provide detailed insights and personalized services at the asset level, your customer interactions become more meaningful and responsive. Through a customer portal, you can also allow users to access details about their contracts like asset usage or making modifications for assets under their contracts. Not only does this give your customers more control over their business, but it also increases transparency, improves customer loyalty, and builds lasting relationships through a customer-centric approach.

Compliance, regulations, and audits - A closer look at asset-level governance

When it comes to playing by the rules, having a detailed view proves invaluable, especially when dealing with aspects like taxation tailored to specific regions/jurisdictions. For organizations managing assets across diverse geographical locations under a single contract, maintaining clarity at the asset level is essential to address the complexities associated with tax calculations and other audit requirements.

Looking ahead, the evolving landscape of ESG (Environmental, Social, and Governance) and sustainability protocols introduces an interesting dimension. As reporting requirements and governance structures continue to evolve, the ability to disclose crucial information, such as emissions at an asset level, will become important. In this unfolding future, having comprehensive information at the asset level not only provides an added advantage but might become a necessity as these reporting frameworks evolve.

The importance of selecting the right tech partner/solution

As you dive deeper into detailed layers of information, you also need to assess how comfortable you are managing all that detail. It's crucial to keep in mind that the more your system leans towards being asset-based, the greater the volume of data it generates and needs to process and store, which can affect overall system performance.

To avoid hiccups, it's essential to seek solutions or partners who have anticipated and accounted for the system's ability to manage and process this increased data load without compromising performance. So, when picking a tech solution or a partner, look for those who've thought ahead and have ensured that their asset-based solution is inherently designed to handle increasing volumes of data as you scale. It’s all about finding a tech ally that's as comfortable with granularity as you are.

The future belongs to the flexible and agile

The advantages of adopting an asset-based leasing platform are multifaceted, ranging from internal operations to customer satisfaction. Notably, in an evolving market, platforms that deploy asset-based financing exemplify a unique advantage. As data becomes the linchpin for informed decisions, it's evident that companies will need asset-based leasing and finance platforms to meet the dynamic demands of the market. This puts solutions like Odessa at the forefront of a transformative shift, quietly setting a standard for the future of leasing platforms.