Fixed costs, variable costs
The amount of income tax to be paid is reduced if the company incurs expenses related to its operations. Not surprisingly, many companies choose to lease equipment, furnishings or vehicles – this allows them to bear the fixed costs while spreading out the large sums that often have to be paid for specialized equipment or a company car.
In addition to this, every company incurs variable costs, which include each time it purchases materials, goods for sale or pays for services performed for the company. When it becomes difficult to cover the company’s current expenses with our own funds, we can use the factoring service.
Sources of funding
We can finance the expenses incurred by our business with our own funds or with external funds. Both leasing and factoring fall into the latter group, but their purpose usually differs markedly.
Want to know more about sources of business financing? Read the article!
Factoring – what is it and when is it worth using?
Factoring is a service in which a factor (in this role usually a factoring company or a bank) buys from the factor (the entrepreneur using the service) a receivable that the latter is waiting to be paid. As a result, the factor receives money in a short period of time, for which he would normally have to wait much longer, and the receivables are handled by the factor from now on, in exchange for a commission.
The factoring service allows companies to improve their liquidity ratio and quickly recover frozen funds. Factoring eliminates the risk of delays in payment of the company’s current obligations, such as purchasing more materials, goods or securing salaries for employees.
It may happen that the company encounters unforeseen expenses – the need for needed repairs, the purchase of more goods due to increased demand for the company’s products – the transfer of receivables to the factor and the almost immediate recovery of money from the defaulting counterparty will ensure that no further delays are created.
When and how to use leasing?
Leasing is a form of financing that allows you to plan wisely for the purchase of expensive equipment or means of transportation. Small service companies usually use leasing to purchase a vehicle to transport materials and employees. Cafes and restaurants lease industrial refrigerators, specialty coffee makers and other machinery needed to run their businesses. This is not surprising, as the cost of purchasing said coffee machine designed for the needs of a catering establishment can reach up to several thousand zlotys.
The lease installment not only avoids having to pay a large amount at once, but also affects income tax and VAT.
Also find out the difference between an operating lease and a finance lease!
Factoring versus leasing – a comparison
The main difference between factoring and leasing is what you want to use the funds raised for. Choosing the right form of financing should now be a little easier – each has its advantages, but they work best in certain situations.
It is worth using factoring when you want to pay current obligations or in a situation where the term agreed with the counterparty for the repayment of debts is extremely long – then it is worth taking interest in permanent online factoring .
Leasing will be a good idea if you want to supply your company with fixed assets – this will spread the cost of the purchase in installments, create fixed costs (which will result in lower taxes), and at the same time you will not lose the ability to depreciate the purchased assets.
