Capital improvement: Leasing company fueled growth at Phillips Office Solutions
In 1997, Phillips Office Solutions was on the verge of losing a top client in Lancaster County.
Not because Phillips supplied bad products. Not because of any service issue. But because the client was tired of dealing with a third-party leasing company to pay for the equipment Phillips was selling. Phillips always had used a third-party leasing company instead of handling the financing in-house.
The solution was Phillips Capital, a direct leasing company created by Phillips Office Solutions. The venture eliminated the need for a third party and has become a pillar of the company’s growth.
“I don’t think we would have been as successful in our company as we have been,” said Peter Phillips, the company’s CEO.
Indeed, Phillips Capital turned out to be more nimble than a third-party company could be, became a popular lead-in to other services offered by Phillips Office Solutions and brought customers a service they would have had to find elsewhere, according to Bill Shuey, president of the document managing division at Phillips Office Solutions.
Today, about 85 percent of customers that buy equipment through Phillips use the company’s leasing plan, Shuey said. That works out to about 2,000 leases on nearly 8,000 copiers, printers and other equipment. Prices range from $650 for a small, multi-function device to more than $600,000 for a large fleet of equipment, according to Shuey. Popular lease terms are between three and five years, but the company has flexibility to work on longer terms as well, Shuey said.
The company’s currently has about $18 million worth of equipment on lease, Phillips said.
Founded in 1940, the company has about 3,000 clients overall, ranging from small customers like churches, to large clients like The Hershey Co. in Derry Township. They are served through seven offices spread across Pennsylvania, Maryland, Virginia and West Virginia. In 2015, the company expanded to the northern tier of Pennsylvania when it acquired Phillips Supply House of Montoursville, Lycoming County, owned by a different Phillips family. It was the company’s fifth acquisition in 30 years.
But while it has experience with acquisitions, Phillips didn’t have any experience starting a leasing company. So executives researched companies that had already done it, talked to banks and discussed it with leasing companies. While banks were supportive, none put forth the capital Phillips Capital needed to start.
“The owners had to put in the capital,” Phillips said. “The banks wanted to see the process work before they approved any funding. They wanted to see we could do it first.”
After 19 years, the owners believe they have. Phillips and Shuey said the leasing company could probably charge more for its leases and generate additional profits for the parent company. But that defeats the purpose, Shuey said, because the leasing company’s goal isn’t necessarily to make money. It’s there to make sure the company stays competitive and can offer as much as it can for customers from sale to the end of a product’s life. Phillips competes against companies such as Ricoh, Xerox, and third-party, small-ticket leasing companies like Wells Fargo & Co. (which has a division dedicated to that market).
“We are in a position to deliver to our customers an important component to the relationship,” Shuey said. “And it’s something the customer wants.”
The lower lease rates, meanwhile, give Phillips Office Solutions an opportunity to introduce clients to its other products. In addition to equipment, the company provides office supplies, secure document shredding and storage, printing, office design and information technology services. It also services products throughout the lease period.
Once the lease is up on a piece of office equipment, Phillips Office takes the machine back, refurbishes it and resells it to a business or organization looking for lower-cost, used equipment. Recycling also is an option.
“We’re taking them all the way from the start of when they get this product from us, to the end of its time with the customer,” Shuey said.