Business financing instruments: Leasing and Invoicingby Admin | July 28, 2021
Business financing instruments: Leasing and Invoicing
Whether due to their expansion goals, economic situations or to face any other situation, a great part of the businesses need to resort to some source of financing. In this scenario, there are several financial products that are convenient for such purposes.
Below we will discuss two of these financing instruments, which are useful for the functionality and growth of companies: Leasing and Factoring.
Leasing is an agreement whereby a financial institution (lessor) makes movable and/or immovable property available to a client (lessee) for use by the latter for a specific period of time. At the end of the term, and depending on the type of leasing, the user has the option of renewing the contract, purchasing the asset or returning it to the entity.
Although there are different types of leasing that are distinguished according to the asset being leased, in the case of the Dominican Republic, this financing mechanism is more focused on providing companies with machinery, vehicles and other operating equipment.
Among some of the main advantages of leasing for companies are the possibility of acquiring national and international goods without the need to make large investments; obtaining longer and more flexible financing terms; financing assets with a lower level of indebtedness; among other benefits.
Also called factoring, this is a type of financing in which a company assigns its outstanding invoices receivable to a financial institution to receive the amount of these in advance.
Through this mechanism, the business receives in advance a portion of the money from the sales it has made on credit and assigned to the financial institution, and may or may not notify its customers depending on the conditions it has agreed with the invoicing entity.
In cases where the client is informed of the assignment (invoicing with notification), the client pays the invoices directly to the financial institution.
On the other hand, when the client is not informed of the assignment (invoicing without notification), the payment of the invoices is made to the company, which then remits the amount received to the financial institution.
According to various reports, the benefits of invoicing for companies include obtaining immediate liquidity, which allows them to cover operating and administrative expenses, face contingencies, make investments, among other commitments or financial goals.
Likewise, thanks to the additional services that the company may receive, through this agreement it has the possibility of improving cash flow; optimizing collection management and, consequently, the company's accounting; classifying its customer base; obtaining solvency reports, etc.
According to the above mentioned, invoicing and leasing for businesses are favorable ways at the moment of requiring the essential resources in their productive activities, the choice of one or the other will depend on the needs and objectives they have ahead.