Hire purchase is a well established and popular
method of financing the purchase of equipment by businesses. The equipment is funded over a set term and the finance company
has title to the asset until the final instalment is paid. The customer can claim ‘writing down’ allowances and
VAT is reclaimable on the capital cost.
Features
of this approach are:
Ownership at end
of finance agreement
Equipment is shown as an asset on the balance sheet and amount owed as
a liability
VAT on equipment usually paid in full at outset
There
is the choice of using fixed or variable rates
Negotiable deposits or payment structures can
be tailored to suit the customer's cashflow situation
The benefits of Hire Purchase can be summed up as follows:
Customers can recover ‘writing down’ costs and VAT on the assets
Tax relief
can be claimed against finance interest repayments
The equipment can be used immediately whilst
payments are staggered over an agreed period allowing the customer control of vital working capital and a better cashflow
for the business
Hire Purchase is not repayable on demand providing payments are made in accordance
with the terms of the agreement
Most equipment can be funded allowing the customer to increase
efficiency and productivity
Payment can be structured around the customer's cashflow or
seasonality of their business
Full title to the equipment passes to the customer at the end
of the agreed term.
