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Copier Leasing Guide Part 1

The C.E.O thinks it’s best to buy and own a copier, the F.D. thinks it’s better to lease a copier and take it off the balance sheet; the head of I.T. prefers a fully inclusive Managed Print Service.

So which is the better option?

As you can see each stake holder has a different view and the decision on whether to Lease a multi-function copier print depends on how your company operates and who has the most influence over the decision.

This guide aims to give some pointers and tips on leasing a multi-function copier printer.

In part two we aim to help you navigate and cut through the jungle of copier leasing and avoid some of the pitfalls, cons and scams.

In Part three we give you information on what to do if you feel you are in a bad copier lease or service contract.

Below are some of the most frequently asked questions about leasing a multifunction copier / printer.

Is it best to purchase, lease or rent a copier?

1. What’s the difference between leasing and renting a copier?

2. Does the leasing cost include service?

3. What is the difference between a Finance Lease Vs. an Operating Lease?

4. Will I own the equipment at the end of the agreement?

5. How much does leasing a multi – function copier printer cost compared to paying cash?

6. Would it be better to get a loan through my bank?

7. What is the relationship between the leasing company and the equipment supplier?

8. If the copier supplier lets me down can I cancel the lease?

9. How flexible is leasing; will I be locked in to the lease for the term with the same equipment and what happens if I want to upgrade my copier during the life of the agreement?

10. My company policy is to own all of our equipment; isn’t it better to own a copier rather than lease it?

11. We are a non-taxable organisation, are there any benefits to us leasing a copier?

What’s the difference between leasing and renting a copier?

Without referring to some very specific and niche offerings when the words Lease and Rental are used in the context of office equipment the vendor is using generic terms where the two words are interchangeable, they are one and the same thing. In fact many Lease Documents actually use the word Lease Rental throughout their heading and text.

Some suppliers including ourselves do offer pure rental agreements. These agreements are usually where the supplier will offer you a piece of equipment for a shorter term and you pay the supplier directly and not a third party leasing company.

Does the leasing cost include service?

For the purpose of this guide we are referring to standard Lease / Rental Agreements which do not include any element of service. There are variations on lease agreements which do include service or an element of service. We look at these in more detail in Part Two.

What is the difference between a Finance Lease and an Operating Lease?

An Operating Lease is where the Leasing Company (the Lessor) owns the equipment and the user (the Lessee) pays to use it. With an operating lease the equipment is not shown on the balance sheet of the lessee neither is the debt. It is therefore referred to as off balance sheet and is accounted for in the Profit & Loss of the Lessee’s accounts as an expense. The lessee does not have any entitlement to ownership of the equipment at the end of the agreement.

A Finance Lease is usually (but not always) where the equipment is being purchased by the Lessee over the course of the lease. The equipment should be shown as an asset on the Lessee’s balance sheet as should the total value of the repayments or outstanding debt.

Every organisations circumstances are different and if you are in doubt you should consult your auditor to see if they have their own criteria on how to decide if the lease is an operating lease or a finance lease.

Will I own the equipment at the end of the agreement?

With a standard Lease Rental agreement you will not own the equipment at the end of the agreement

How much does leasing a copier cost compared to paying cash?

To debunk any myths surrounding leasing a copier the formula is quite simple. All equipment vendors get a rate chart from the finance house. The rate chart is based on a “rate per quarter per thousand”. If for example the supplier was supplying £5,000 worth of equipment and you wanted to lease a copier for three years then the rate per thousand per quarter would be somewhere in the region of £97.50 (The five year rate would be in the region of £65.00 per thousand).

To work out your rental cost the formula would look like this £5,000 x £97.50 ÷ 1,000 = £487.50 per quarter rental. Your total payback would therefore be 12 x £487.50 = £5,850.00.

Would I be better off getting a loan through my bank?

You could look at the example above for leasing and make a simple flat rate of interest calculation of £850 ÷ 3 years = £283.33 per annum = 5.66% flat rate of interest. Comparing this rate of interest against what you bank would offer makes leasing competitively priced.

There are several other reasons why a third party lease is better than going to your bank.

Your existing credit line with your bank will not be affected – most Banks will take in to account the total amount owed to them and leasing a copier through your bank will effectively eat in to this facility.

Banks usually require you to provide a business case or business plan as to why you need this equipment. The plan is often forwarded to a regional Manager or Director for assessment; all of this takes time and effort. Leasing companies do not require this and will give a fairly quick decision, usually on the same day.

The Vendor will deal with all of the paperwork, make all of the lease arrangements and deal with the lease company for you, saving you time and hassle.

A bank loan does not usually give you the flexibility to change your equipment during the term of the loan. You will have to repay the loan if you dispose of the equipment and apply for a new loan for the new equipment.

A bank loan will be shown on your balance sheet and can affect the financial rating of your company, whereas most leases are “off balance sheet”.

Leasing is a more cost effective mode of financing the acquisition of equipment when you factor in the tax savings from being able to deduct 100% of the lease payments as deductible for tax purposes.

What is the relationship between the leasing company and the supplier offering the equipment?

According to the leasing companies the relationship between them and the supplier is not one of an agent and principle. The leasing companies have adopted this approach for their own protection, because so many lessee’s have had issues with the way the supplier has behaved. If the customer stops paying the lease because of something the supplier has done then the lease company will simply fall back on the agreement between it and the lessee and purely rely on those terms and conditions. If the lessee states that they are not happy with the supplier the leasing company will state that they are not an agent and the relationship is between you and it.

You should therefore ensure that you carry out due diligence when Leasing a copier or multi-function printer MFD. Many Leasing Companies working in the office equipment marketplace are members of the Finance and Leasing Association (FLA). A good place to start is the FLA’s twelve point checklist for business finance customers.

If the copier supplier lets me down can I cancel the lease?

No you cannot, not without paying the remaining balance of the lease. If you find yourself in a copier contract that is not working well for your business or you feel you have been misled by the supplier read Part three of this guide where we give advice and tips on what you can do. You should always take up references from your intended supplier and we would suggest that you ask for customers who have been with the supplier for at least three years.

How flexible is leasing; will I be locked in to the lease for the term with the same equipment and what happens if I want to upgrade my copier during the life of the agreement?

If for any reason you need to upgrade your copier before the expiry of the lease agreement then there are options available to you and the process is quite straight forward. Leasing can offer an easy upgrade path and a more cost efficient path to continual technological advancement over and above that of an outright purchase.

Always ensure that your proposed supplier takes the time to understand what your business objectives and plans are. A good supplier will ask many questions and take the time to explain what technology is available and how it can help your business. You should also look carefully at what your current monthly or quarterly print and copy volumes are and how this may change in the future. Taking the time to do this at the beginning will help to reduce the need to change equipment mid-term.

If you do find yourself with a need to change equipment mid-way through the term the leasing company will offer a reduced “settlement” figure on the outstanding rentals, known as the “upgrade” figure. This isn’t usually a huge discount, somewhere in the region of 3% of the remaining balance. The balance of the remaining rentals after the discount is added to the value of the new equipment and a new lease is started.

You can of course change supplier and leasing company and the same process happens but you will not receive the early settlement discount. The lack of the upgrade discount could be offset by savings made elsewhere.

The big advantage with leasing for most companies is that it makes budgeting easier as this tends to be added to the on-going quarterly expenses rather than coming out of the capital budget.

My company policy is to own all of our equipment; isn’t it better to own a copier rather than lease?

Lease Payments are a fully tax deductible expense throughout the life of the contract. This is opposed to cash purchased products where the tax deductions are only allowed against the depreciating balance. In certain cases where technological advancement is rapid the depreciation of a machine may well continue beyond the useful life of the equipment.

You can find yourself in a technology black hole with equipment that doesn’t meet the current needs of the business while you wait for the years to pass to depreciate the asset.

Even if you’re business is cash rich the cash can be invested more profitably elsewhere to create increased revenue, which in turn can be utilised to cover the lease payments.

For some organisations assets that are purchased must be capitalised and depreciated in their financial statements. Entries in the organisations asset register must also be maintained. In addition loan payments have to be separated into principal and interest. Lease payments are simple transactions, which only require simple financial entries.

We are a non-taxable organisation, are there any benefits to us leasing a copier?

Non-taxable organisations can benefit from the following non-financial and financial benefits of leasing.

Flexibility - You benefit from being able to upgrade easily to new technology and from eliminating the hassle of disposing unwanted equipment.

WorkingCapital – Funds could be used and invested in other areas to support the business as opposed to purchasing office equipment outright.

In Part Two of this guide you can find out the answers to many other questions including details of Managed Print Service Agreements, Print Plans, Copy Plans, TVRP & TVPP agreements.

In Part Three we discuss what you can do if you have a problem with a copier lease or Service Agreement.

We answer the questions that your copier supplier doesn’t want you to ask