Save Your Accountant The Headache: Why LaaS® Is The Smart Financial Decision
At UrbanVolt, we work hard to make energy efficiency easy for everyone.
One way that we’ve delivered on this is by providing our Clients with a Light as a Service (LaaS®) solution which is truly Off Balance Sheet. Our Agreement is structured as a service charge, not a lease, meaning it doesn’t affect your balance sheet. Choosing LaaS® makes financial sense, as it won’t impact your financial covenants or borrowing capacity, and also removes the need to invest in a depreciating asset.
How does it work?
There are a number of factors which have led to the accounting treatment of UrbanVolt’s LaaS® as Off Balance Sheet.
As per our Installation and Maintenance Agreement (the “I&M”), we retain ownership and all the associated risks of the lighting equipment over the initial five year service period.
With our LaaS® offering, the Client pays for the light output, not the light fitting provided. Our monthly service charge covers your use of our lighting equipment.
We take responsibility for all maintenance and expense associated with the lighting equipment for the duration of the five year agreement, including insurance.
End of Term
What happens at the end of the five year period? We give the Client the option to either (i) extend the LaaS® agreement at a reduced service charge or (ii) terminate the Agreement at no cost. The ownership of the lighting equipment is transferred to the Client at nil cost.
Why does Off Balance Sheet matter?
Your Balance Sheet is a representation of your company’s financial position, so any addition or alteration has company-wide repercussions.
Traditional Off Balance Sheet financing (typically operating leases) have been often used to comply with financial covenants and preserve borrowing capacity.
Operating leases are not invisible. Currently, under International Financial Reporting Standards (‘IFRS’), companies are required to disclose all lease commitments (financing or operating) in the notes to their financial statements (IAS 17).
Effective 1 January 2019, IAS 17 will be replaced by IFRS 16. As a result all leases (finance and operating) must be shown on the Balance Sheet of a company, meaning they will require more disclosure and reporting, and carry increased liability. This change will have an impact on a company’s financial covenants and borrowing capacity.
UrbanVolt’s LaaS® has been carefully designed to make it a service charge, not a finance or operating lease, and thus will not appear on your Balance Sheet.
Us vs Others
While other companies may claim to offer Light as a Service, most are in fact offering financed lighting – which must be declared on your Balance Sheet. Their Clients assume all financial risk, and only reap the financial benefits of the installation after 3-5 years.
With UrbanVolt’s unique Light as a Service model, you pay a service charge, not a lease. There is zero financial risk, as we make the capital investment into the upgrade and it is cash generative from Day One.
Spare your company the hassle and opt for the smart financial choice for your lighting needs. Your accountant will thank you for it.