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How Do Commercial Coffee Machine Leases Work?

How Do Commercial Coffee Machine Leases Work? Main image

Here’s our detailed explanation of both the business model/theory behind buying or leasing a professional coffee machine. We’ll keep the intro short and sweet as this is a highly in-depth look into commercial coffee machine leases. If you’re looking for something a bit easier to digest, try our introductory post on how commercial coffee machine leases in the UK work.

The Commercial Coffee Machine Business Model

In many ways, coffee machines are like any retail item – a manufacturer makes them and sells them to a distributor, who then marks them up a percentage and sells them on to an end user. But a coffee machine by itself is pretty useless – it needs coffee to complete its mission in life: A bit like a shaving razor and a razor blade or mobile phone and sim card. Further, commercial coffee machines are pretty expensive – the cheapest begin at around £1,000 while pricier (but still common) models can reach £12,000. Because of that, many clients choose coffee machine leases over 3-5 years to defray the cost a bit.

Coffee machine leases complicate the straightforward model above a bit. Instead of simple one-two, it’s something like:

1. A manufacturer makes a commercial coffee machine then sells it on to a distributor.

2. The distributor buys the coffee machine, marks it up some percentage and sells it on to a leasing company for a profit.

3. The leasing company collects payments over 3 – 5 years that add up to an amount that’s higher than what they paid the distributor.

4. When those payments are all done, ownership of the machine reverts to either the distributor or the client.

The long-term commitment of commercial coffee machine leases provides coffee machine distributors with an opportunity to sell clients their coffee over the duration of the lease. This can be a fantastic (and lucrative) opportunity and at this point, you’ll see a few different approaches from coffee companies.

The Discount then Gouge

✓ Large discount off machine / machine loaned for free

× Committed to buy coffee from the same distributor

× Large minimum coffee order quantities

The Win-Win

✓ Machine discounted to cost price

✓ No minimum coffee order quantities

× Committed to buy coffee from the same distributor

The Full Price Lease

 No commitment to buy coffee from the same distributor

× Client pays the full retail price for the machine (compared to options 1 & 2)

The Outright Purchase

 No interest to pay

 No commitment to buy coffee from the same distributor

 Less admin and paperwork

× Machine has to be paid in full upfront

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How Do Commercial Coffee Machine Leases Work?

Let’s get to the facts. How do commercial coffee machine leases actually work? We’ve broken the whole process down into 8 simple steps.

The Quote

 The client receives an indicative quote for coffee and the coffee machine

First the client needs to pick a commercial coffee machine, of course, and they’ve got a choice of three different types:

The distributor will know the different rates available from the lease companies. The rate you receive will depend on your company status (LTD or Sole Trader) and length of time trading. There are three groups:

1. Up to 3 years (LTD & Non-LTD)

2. 3 – 8 years (LTD) & 3 years+ ( Non LTD)

3. 8 Years+ ( LTD only)

The better the status, the better the rates the client will receive.

What goes into a quote?

Not just the machine, it turns out. There are extra things to look out for:

  • Water filter: needed to ensure the water going into the machine isn’t full of limescale
  • Milk cooler: if getting a machine that makes drinks using fresh milk, this is needed to keep the milk cool
  • Delivery and installation: the key to getting the best of a machine’s potential is setting it up right from the beginning
  • Extended warranty and service plan: most commercial coffee machines are covered for at least a year, but an extended three-year cover is available at an extra cost

Quote Example

The quote for your coffee and coffee machine will look something like this except with actual words and numbers.

The quote is indicative here and will be finalised once the lease company does credit checks, but it’s rarely more than 5% – 10% off.

This is also where things like machine availability, delivery lead times and coffee ground recycling are discussed.

(click to enlarge the image)

The client confirms they’re happy with the indicative quote

The client will review the quote, ask questions and last adjustments are made before moving forward.

Does the client want to roll the admin fees into the lease?

The dreaded admin fees. When doing commercial coffee machine leases, the leasing company charges £130 to set up the lease and £40 per year to maintain it. The client can choose to either pay the fees upfront or roll them into their lease.

At this point, the client will get started with a patented commercial coffee machine lease worksheet to make sure everything stays transparent, and everyone knows where they in the process.

The Formal Quote

A formal quote request is sent to the leasing company

Once the client is happy to go ahead, the distributor gets in touch with the leasing company to underwrite the lease for the coffee machine. They’ll do basic credit checks to make sure the client’s company has been around for a few years, and – ideally – return a formal quote within a day or two.

 The leasing company has all the necessary information

The basic information normally required for coffee machine leases will be the full name, date of birth, and address history for the past three years. Although not essential, it is favourable for the client to be a homeowner if the company is new ; bank statements might also be requested. In some cases a guarantee might be required – there are two types of this: either a director’s guarantee where the client takes personal responsibility for the cost of the machine, or a homeowner guarantee, where another party takes on that responsibility.

Once everything’s in order, the formal commercial coffee machine lease is sent to the client to be signed and returned.

The Documents

Pen to sign commercial coffee machine lease contract

 The client reviews and signs the lease

If the client is happy with everything, they’ll need a company director to sign the lease and post it back to the leasing company before they can move ahead with the coffee machine. Once the documents arrive, everyone can move forward.

 The client reviews and returns the order confirmation and coffee supply agreement

If the client decides to purchase the coffee from the same distributor, they’ll send over a coffee supply agreement for the client to review and sign. They will also usually require an order confirmation which confirms what happens if you cancel from this point forward. Unlike coffee machine leases, these usually just needs to be signed and scanned back in.

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The Order Placement

 The machine is ordered and delivery date confirmed

Once all the forms are signed and everything’s legal, the coffee machine is ordered from the manufacturer. At this point, the distributor will be able to provide an exact date for installation and delivery. The water filter will be ordered around this time as well – this is something that all commercial coffee machines require, with the exception of filter machines.

Note: The water filter will usually turn up in a separate box.

The Coffee

Underdog Coffee El Capitan roast front view

Coffee & ancillaries are sent out for delivery

If the client has ordered coffee from the same distributor as well, it’ll normally be sent out to arrive a day or two before the machine is installed. This ensures that the machine can be set up properly and the client isn’t left with empty coffee machine waiting a few days to put something in it.

Similarly, if tea, chocolate powder, coffee cups, stirrers, sugar or anything else has been ordered, they should arrive before the machine does.

The Delivery

The coffee machine is delivered to site

The manufacturer will aim to deliver the machine a full two working days before they send an engineer to install it. This ensures it’s definitely there in time in case anything affects the delivery. The client will get a document letting them know exactly what they need to do to ensure the site is good to go.

The Installation

The coffee machine is installed by an engineer

An engineer will arrive to install the coffee machine on the client’s site and teach them and the staff how to use it. This typically takes a couple of hours depending on how complex the machine is.

*Some commercial coffee machines do not require installation. If this is the case, this should have been discussed with the client prior to delivery, who will need to read through the manual and set up the machine as instructed.

The delivery acceptance form is signed and posted back

Once the machine has arrived and is in good working order, the client will be asked to sign and post back the delivery acceptance form previously sent by the leasing company. This lets them know the client received what they’ve been promised and is happy with the machine.

Importantly, the lease company doesn’t pay out until the client does this, so promptitude is required.

The Payment

The distributor gets paid

Once the delivery acceptance form is received, the lease company makes payment to the distributor.

That’s it!

The coffee machine is all set up and ready to be enjoyed.

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Commercial coffee machine leases can cost as little per week as two of your favourite high street takeaway coffees – and the coffee machine promises to meet your high expectations. Get in touch or simply fill in the form below and we’ll guide you through the simple process of getting your very own professional coffee machine.

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