hire purchasing This is a topic that many people are looking for. newyorkcityvoices.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, newyorkcityvoices.org would like to introduce to you Sources of Finance – Hire Purchase and Leasing. Following along are instructions in the video below:
“There in this short topic video. We re going to take a look at two two more external sources of finance for a business. Hire purchase and leasing now when look at these two methods of finance. You ll see that actually the cash flow effects are quite similar and they involve a similar concept.
Which is the spreading out of payments over a fairly long period in return for using an asset. Both of which have cash flow benefits to a business compared with buying an asset outright. However there is a subtle difference between the two hire purchase involves buying or owning the asset that you re paying for so. The higher purchase is an agreement to own the asset sometimes with a final payment at the end of the agreement.
Which completes the high purchase period. Whereas leasing you never actually own the asset. You re simply. If you like with it as a result of the payments to the lessor you re gaining access or use of the asset.
The asset is ultimately owned by the organizational business that is leasing it to you so with hp you get to own the assets. Provided of course you make the payments with leasing you don t you get use of the asset. But you don t own it it s a subtle difference. But quite an important one now.
Let s just quickly spend a few minutes. A couple minutes thinking about hp weave method. We ve mentioned that this is a method of buying goods buying assets by making installments or payments over time so rather than paying a big amount upfront you pay over installments. Now.
The key features of hp are that often the agreement is structure. So that the bigger cash flows can be towards the end of the hp agreement. Sometimes. It s what s known as a balloon payment at the end of the period.
Where you gain the final payment to gain full control of the assets. It s very flexible. So you ve always got an option to when to make those payments. And i think more importantly for a business a very large range of assets can be financed or purchased using hp.
It s not just about cars. So for example. Whilst. Company cars are often bought on hp as well as of course by leasing agreements you can also use hp to i think like photocopiers large office equipment.
But also machinery plant a machine before the factory. So hp is a very common way of financing. The purchase of what you would know as fixed assets plant and machinery or capital assets leasing is a slightly different concept we ve mentioned that leasing means you don t actually own the asset. You re simply making a payment to the lessor.
So i think of leasing as a form of rental you re renting an asset. You re getting getting access to that so you can use the asset in other words. You have beneficial use of the asset. But you never own it now the key thing a key benefit of leasing.
Which is similar in some respects to hp is that the leasing agreement gives you very predictable cash flows and you re spreading the cash payments over a fairly long period. If you wish another benefit is that the owner of the asset. The lessor actually carries the risk if the asset. No longer works or needs to be replaced.
It s the lessor whose job. It is to to replace the asset and also generally a leasing arrangement involves a lower interest rate than for example taking out a bank loan to buy the asset so it can be quite a low cost way of financing asset asset access leasing is very widely available it s a very popular form of structured finance for a business. Some of the downsides well obviously we ve mentioned already that you don t actually own the assets. You re simply.
Gaining access beneficial use of the assets. And of course. You ve always got to be careful handy with leasing contracts long term contracts of any sort since sometimes they re quite difficult to cancel there may be payments involved if you wish to get out of the lease. So always have to be slightly.
Careful that there aren t onerous elements to the contract and also occasionally the lessor may require upfront deposit. Which may have a cash flow. Implication there we go then that s a brief introduction to two very popular widely used sources of finance. Both of which are external sources of finance hire purchase ” .
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