There may be any number of reasons you’re looking for early termination on your Xerox lease. Your equipment may be obsolete, you may be unhappy with the service, or your current payments may have become challenging. Or maybe you’re just looking to reduce expenses for your business or are looking to sell or close your business.
Regardless of the scenario, you might be looking at a lot of legalese in your copier lease and wondering whether you can even get out of what you’ve signed on to.
This article will explain when it makes sense to break a Xerox contract and what savings (yes, savings!) you can get.
Xerox Business Solutions’ aim is to help businesses improve their workflow through the use of technology. The service hopes to solve business problems through its diverse offerings, top-tier technology, and plenty of local support.
They design, install and support computer networks and the equipment that goes along with them. In an effort to digitally transform the company, they also offer automated office equipment such as printers, copiers, multifunction devices as well as wide-format devices.
There are a variety of contract services available with Xerox. You can sign up for maintenance, network management, tech support, training, and supplies services when you work with the company.
First, we need to be clear on the difference between a service contract and a lease agreement. You may have signed a unified document or only make one payment a month but, in all likelihood, you have signed two separate agreements.
All that a lease covers is the machine itself. Repairs, toner cartridges, remote assistance, and any other items for the machine will be covered by a service agreement. This is an arrangement made with a copier supplier/manufacturer.
A lease agreement is between your company and a lending agent. Your company gets access to a machine, be it a printer, copier, multifunction, etc., for a set amount of time. In exchange, the company pays a rental fee. Many times there is an option to buy the machine at the end of the lease.
There are two types of service agreements. The first bundles the service contract with the lease agreement. That means you receive one bill for both. This is the most difficult contract to break.
The second separates the service contract from the lease agreement. In this situation, you receive two bills monthly: one from the service contract and one from the lease agreement. It’s easiest to cancel this type of agreement as once you pay off the lease agreement, you’re free to change service providers.
Depending on the agreement you’ve committed to, you may have to go through two separate cancellation procedures, but very often there’s a single procedure that deals with both of these agreements.
Before looking at anything else, you should check to see whether your Service Agreement has an automatic renewal clause built in. Service providers put these in to prevent their losing customers without notice. Once you’ve taken a closer look at the agreement, here are a few ways to (legally) get out of a Xerox contract:
Often, you as the customer have to provide a Letter of Intent to terminate service 30-90 days before the end of the agreement. Failure to prove that Letter of Intent can trigger an auto-renewal (sometimes for up to 12 months!). Be sure that you understand what the cancellation procedure is, even if you know your contract is set to expire soon. The fine print may surprise you.
One avenue to break a service contract is gross negligence on the part of the service provider. That doesn’t refer to how quickly they respond to your calls or how reliable the machine is. It needs to be more extreme, like the service provider never providing any maintenance for the machine.
Maybe they have tried to fix your machine but could never get it in working order and failed to provide a replacement machine. There are often creative ways to determine if there is an opportunity here.
Whether you fail to give a Letter of Intent or simply wish to terminate a service contract early, there are often penalties that are triggered as a result. Know what these are and incorporate them into your cost of canceling. We rarely recommend canceling a contract early, as we have other ideas on how to get out of your lease early below. If you do cancel the lease early, the cancelation fee is usually tied to the value of your copier at that point in time.
Example: If you financed a copier for around $200 a month, then you paid approximately $10,000 for that machine (5-year fair market value lease including interest). If you try to cancel your lease 1 year into a 5-year lease agreement, your cancelation fee could be the sum of your remaining payments (48 months left x $200 a month = $9,600), plus an early termination penalty of $7,500-$9,000 (your current copier value).
Sometimes a competing dealer will agree to “buyout” your lease to obtain your business. That dealer will roll the cost of your remaining lease into a new one, which allows them to recoup some of the cost of paying off your old equipment. Essentially, this is a refinance of your remaining payments over a new time horizon (e.g. 36-60 months) while upgrading your existing machines now.
This is usually an expensive option and has a similar effect as having one car loan rolled into another. It may lower your bill slightly, but it does this by spreading the additional debt over a longer term of payments.
If you are selling your business, most leases have an “Assumable Lease Clause” that will allow the buyer of your business to assume your lease. They will typically have to submit a credit application to the copier company and qualify for the lease. Once they are qualified, the copier company will provide them with the new lease paperwork to take over the lease. Once signed, you’re off the hook!
As is the case with many contracts, the contract is written to the advantage of the issuing party, in this case, Xerox. The contract specified that they were to give you a machine and that you would pay to rent it. In 99% of cases, clients have received a machine, which means the lease is valid.
This doesn’t mean that there’s no way out of the situation. The contracts often do offer a buyout clause, with liquidated damages paid for breaking the contract. Liquidated damages are meant as a fair representation of losses in situations where actual damages are difficult to determine. The amount of damages is meant to be fair rather than punitive.
But this also means it generally doesn’t make any financial sense to break the contract and trigger the damages until you are at least 50% (or more) through the term of the agreement.
So how do you get out of this contract while still saving some money? At P3 Cost Analysts, our managed print auditors use a proprietary database of vendor benchmarks and industry expertise to get you savings to cover those damages costs, and additional savings as high as 30% or more.
Most companies don’t have reference points for what similar businesses (or even businesses in the same industry) are paying for their service agreements or leases, but we do! Over the past 30 years, we have compiled a comprehensive database of vendor pricing, and know how to deliver savings to our client’s bottom line. In some cases, our clients stay with the existing service provider but with a better deal. In other cases, we help them switch to a better vendor.
In one case, a school district with 100 copiers ended up saving one million dollars over a five-year term, got all brand-new equipment, and consolidated from several service providers down to one.
If your situation requires bidding out for a new provider, we provide bid-support services as well.
P3 specializes in getting our clients out of their leases early, without incurring an early termination penalty.
Getting out of a Xerox contract can be tricky, but it’s not impossible, and we can help.
If you’re interested in having P3 Cost Analysts take a look at your Xerox service contracts or lease agreements to see what options are available to you, feel free to reach out today for a free Copier Contract and Savings Estimate audit.