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netherlands Archieven - WBSO Software Specialist

The pros and cons of factoring and leasing

By | Finance

Factoring assumes that outstanding invoices are sold to a factoring company. The factoring company immediately transfers the outstanding amount and subsequently collects the bill from the customer. Leasing is best known for car financing but can be used for many more things. In general, when leasing an object, it is borrowed for a fixed fee. In the case of a financial lease, you become the full owner of the object with an operational lease. The leasing company remains the owner until the full amount has been paid. There are advantages and disadvantages to each form of financing. In this blog, we will discuss the pros and cons of factoring and leasing.  

The benefits of factoring for entrepreneurs

 

  1. Liquidity

The factoring company immediately pays out a large part of the amount to be collected. So entrepreneurs no longer have the problem that debtors pay (too) late, but can immediately dispose of the money and invest it again in the organisation.

  1. Capital

Organisations receive more capital through factoring than through a bank loan. As a rule, banks finance about 50 percent of the outstanding accounts, while the percentage of factorisers is much higher (70 to 90 percent).

The disadvantages of factoring for entrepreneurs

 

  1. Privacy

A factoring company takes over almost the entire accounts receivable. Insights into the financial picture of the company help to do this. Not every entrepreneur feels comfortable when sharing annual figures with an external party.

  1. Cost

The organisation loses part of the margin because part of the outstanding accounts will go to the factoring company as payment for the services. The agreed percentage often makes factoring a bit more expensive than a bank loan.

The benefits of leasing for entrepreneurs

 

  1. Scatter

Leasing is linked to the financed object. A separate contract can be made for each object (such as machines, cars, or stock). Therefore, multiple sources of financing can be used. Besides, the costs are spread over a longer period. There is no major purchase cost item, but there is a monthly payment. So you don’t have to save long to buy a new object.

  1. Owner

In the case of a financial lease, the entrepreneur immediately owns the object to be financed. This means that you can immediately benefit from the tax depreciation and the investment deduction. This is slightly different from operational leasing. With this form of leasing, the leasing company remains the owner of the object until the last installment has been paid.

 

The disadvantages of leasing for entrepreneurs

 

  1. Contract

Leasing usually consists of a multi-year contract that is not very flexible. Breaking open a contract in the meantime is virtually impossible or very expensive. This may mean that when an object is replaced, payment must be made for the object that has since been replaced and the replacement. This happens, for example, when a leased machine breaks down and is replaced during the contract period. Although the broken machine is no longer used, it still has to be paid for.

  1. Cost

Leasing an item is more expensive than buying the item right away. Entrepreneurs pay the lease company to spread the payment of the purchase price.

 

Check out SmartFunding website for more information. For advice or questions you can always contact SmartFunding on +31 85 303 56 65 or info@smartfunding.nl . You can always contact one of the SmartFunding advisors directly .