An increasing number of distributors are now offering equipment rentals, and this is particularly the case for building materials suppliers. Renting equipment is a business that works well with distribution, particularly in industries like construction, building materials, large-scale irrigation and the like. However, offering equipment rentals is quite different from a typical distribution business that sells goods from inventory. So, to do this properly requires specific equipment rental software capabilities. Some ERP solutions offer both distribution software and equipment rental software capabilities that work together out-of-the-box.
How is Rental Software Different from Distribution Software?
Short-term equipment rentals are accounted for as operating leases under FAS13 and US GAAP. This means that the business owner retains legal and accounting ownership of the rental equipment. Rental items are treated as fixed assets on the lessor’s Balance Sheet. Rental income is recorded as items are rented and costs are recorded periodically through depreciation expense. Rental items are always non-inventory items and may be serialized or not serialized. In contrast, a distribution business purchases goods and capitalizes these into inventory. The distributor then marks up these inventoried items and sells them to customers. As goods are sold they creates sales income and matching cost of goods sold.
How does Rental Software Work?
Unlike the distribution business, equipment rental items are carried as fixed assets not as inventory. The business purchases items like construction equipment for the purpose of renting them rather than to sell them, as a distributor would. The rental business then makes these items available for rent for the desired number of days typically at a rental price per day and records rental income. Periodically depreciation is recorded on rental items which creates the expense charged against the rental income. Good equipment rental software should show the user all the items available for rental as well as the items currently on rental. In response to a request to rent a particular item or items, the equipment rental software should allow the user to easily see which of those items are available and which are currently on rental and when expected back. It should also be able to easily show the locations of the jobsites or ship-to customers that have the equipment out on an ongoing rental.
What are the Key Features of Rental Software?
There are several important features of good equipment rental software. If your equipment rental software is missing any of these key features, it will cut down on efficiency and make your rental operations more challenging.
Business Day or Calendar Day
Good equipment rental software should give the option of counting the rental period by business day or by calendar day. Typically, construction rentals are done by the business day while most consumer-focused rentals are by the calendar day – think of renting a car, for example.
Rent by Day or By Hour
Some businesses may want to rent items by the hour. This is typically only done for consumer-focused business like renting power tools for example. The equipment rental software should allow either option.
Pricing Subject to Quantity Breaks
Most rentals are offered at a price per day but then offer significant discounts for 3-day rentals or 1 week rentals or 2 week rentals. The equipment rental software should be easy to configure for this kind of pricing, easy to maintain your pricing and should be able to work on the basis of business day or calendar day.
Monthly Billing for Longer-Term Rentals
Good equipment rental software should allow monthly billing of a longer term rental and easily track all the interim monthly invoices and payments.
Serialized Products or Non-Serialized
Larger equipment items (e.g., Bobcat Mini-Excavator) would typically be serialized to distinguish one specific machine from another of the same type and with the same product code. Typically, serial numbers are scanned in using handheld barcode scanners to facilitate easy return and check out of rental items. However, this won’t work for smaller products which may rent multiple such items together (e.g., scaffolding or fencing panels). The equipment rental software should allow for rental items to be serialized or non-serialized.
Serial Master Record
All serialized products should be able to be tracked to record when they are sitting on the lot, or when they are on rental, and rented to which customer, on which invoice, as well as when undergoing maintenance. The equipment rental software should have a full serial tracking capability.
Rental Products Status Screen
Good equipment rental software should show all rental products on one screen so the user can easily respond to a rental request for 3 aerial lifts for 4 days, for example. The user must be able to see all the towable boom lifts and at a glance see how many are available. The user should also be able to see, for example, how many scissor lifts are available, as possible replacements.
Equipment rental software should allow depreciation to be managed easily and quickly for all rental products and be able to easily accommodate whatever accelerated depreciation schedule methodology is selected by the business for that equipment type.
Selling for Salvage Value
Rental items can typically only be rented for a portion of their economic lives and then may sold for salvage value. Good equipment rental software should be able to easily handle decommissioning of a rental item and then selling it from inventory for salvage value. The same process should also be available for damaged rental items.
Why Do You Want Rental Software Integrated with Your ERP Software?
Having your equipment rental software fully integrated with your distribution ERP software means that you can combine your rental business operations with the traditional distributor model of selling goods alongside your rentals. For example, you might rent an excavator and sell large scale irrigation systems at the same time. You can also have a single GAAP-compliant accounting system that correctly accounts for both the rental business as well as the distribution business. You can also use the centralized reporting, dashboards, business intelligence and data analytics for both businesses. Using the reporting and BI tools you can identify rental items that are underperforming and take steps to improve utilization. You can also manage your whole rental portfolio to ensure that you have the right mix of rental products and manage uptime and maintenance schedules.
If your equipment rental software doesn’t measure up, contact us to demo Accolent ERP. Accolent ERP is a Cloud-based ERP solution that supports both wholesale distribution and equipment rentals in one product. Accolent ERP is designed for small and mid-sized business.