 Hire Purchase (HP) for computers is a financial facility that allows a business to use an asset, such as a computer, over a fixed period, in return for regular payments. The business customer chooses the equipment it requires and the finance company buys it on behalf of the business. Attaining HP for computers requires careful planning. It can often make sense for businesses to look for ways of spreading the cost of acquiring an asset, to coincide with the timing of the revenue generated by the business. To grow successfully, planning for the medium and long term is recommended. There are a number of forms of finance available to help businesses put together a financial package to suit their needs. A source of medium term finance for business is HP.
The Advantages of HP for Computers are:
Computer ownership - After all the payments have been made for the HP for computers, the business customer becomes the owner of the equipment, either automatically or on payment of an option to purchase fee.
Tax Advantages - For tax purposes, from the beginning of the agreement the business customer is treated as the owner of the equipment and so can claim capital allowances. HP for computers gives the business the choice of how to take advantage of capital allowances. If the business is profitable, it can claim its own capital allowances through hire purchase or outright purchase. If it is not in a tax paying position or pays corporation tax at the small companies rate, then a lease could be more beneficial to the business.
Budgeting - The regular nature of the payments for HP for computers and their usually fixed amount helps a business to forecast cash flow. The business is able to compare the payments with the expected revenue and profits generated by the use of the asset.
Fixed Rate - In most cases the payments for HP for computers are fixed throughout the hire purchase or lease agreement, so a business will know at the beginning of the agreement what their repayments will be. This can be beneficial in times of low, stable or rising interest rates.
The Disadvantages of HP for Computers are:
Responsibility for Maintenance and Upgrades - The business customer will normally be responsible for maintenance of the computer equipment and liable to any component upgrade.
Long Term – HP for computers are long term commitments and it may not be possible, or could prove costly, to terminate them early.
Considerations for the HP for Computers Agreement:
Consider whether the length of the HP for computers matches the period for which you need the asset. When a business takes out an agreement it is committing itself to payments over the agreed period. If the business customer wishes to settle early, it may be expensive or in some cases impossible to do so. It is important to be aware of all clauses contained in the agreement and the implications that these will have on your business. Where the lease is arranged by the equipment supplier, be sure that you understand the relationship between the leasing company and the supplier.
|
