Types Of Finance

This is a very straight forward structure where the business makes all of its payments and owns the asset at the end of the agreement upon payment of an option to purchase fee which formally passes title to the asset from the lender, back to the customer.
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The rate is usually fixed and the payments are also fixed which eases the ability to budget, especially as the business chooses the amount of deposit and the term of the agreement. Variable rate agreements and balanced payment structures are available.
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The customer is treated as the owner of the asset from day one and is responsible for choosing the asset as well as maintaining it. The asset and the corresponding liability are both shown on the balance sheet and the customer can take advantage of tax allowances which offset against tax.

Rather than having to pay all Vat up front, a finance lease allows Vat to be paid on monthly payments. Very differently to hire purchase, the hirer does not own the asset at the end of the agreement, and agrees to pay a secondary rental (normally one month’s payment per annum) in order to keep the asset for a further period.
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When the company no longer requires the asset, it is responsible for finding a buyer for the equipment and it is the lender who must raise the invoice. The asset must be sold to a third party and the lender keeps a small percentage of the sales proceeds.

If equipment is required only for a specific period of time (a particular contract, or perhaps even leading up to retirement) then an operating lease can be helpful. The customer chooses the goods, and the funder then calculates a rental stream. The customer makes the payments (which all attract Vat) and at the end of the term, the customer hands the asset back to the funder whose responsibility it is to sell the goods. This structure is more common with assets which have a stronger residual value and where second hand values are established.
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An operating lease is not shown on the balance sheet (but operating lease commitments are shown in the notes to the accounts) and the rentals go through the profit and loss account.

This is a very useful tool if there is equity in assets and the customer requires to bolster cashflow. It works just as a hire purchase agreement, but the goods are sold out by the customer, to the funder who then releases monies to the hirer. The balance is then repaid under a normal hire purchase agreement and once all monies are repaid, including the option to purchase fee, title to the goods returns to the customer.

This is a way of generating cash from your credit sales invoices more quickly than waiting on your Customers paying you.

There are two main products: Invoice Discounting and Factoring:

Invoice Discounting
• Gives you more working capital straight away, usually around 85% of the invoice value.
• Helps cash flow worries.
• Gives you freedom to grow and to take advantage of supplier discounts by paying them early.
• Funding grows as you grow.
• Your Customers are never aware of your finance arrangements with us.
• You still look after your own Credit Control and, therefore, Customer relationships.
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Factoring
• Gives you working capital straight away, usually around 80% to 85% of the invoice value.
• The remaining balance is paid to you once the Customer pays the invoice (less the agreed fees).
• Helps cash flow worries.
• Gives you the freedom to grow and to take advantage of supplier discounts by paying them early.
• Funding grows as you grow.
• The factoring company takes over the control of your sales ledger and collects what is due to you directly from your Customer.

This unsecured loan facility which can be used for many purposes including supporting unexpected corporation tax bills, VAT bills, or indeed applications for financial standing. Even if you find that debtors are slow to pay, the unsecured loan can help bridge the gap created in cashflow. Whilst not secured on an asset. Personal guarantees may be required.