In the ever-changing world of manufacturing finance, the concept Pay per Use Equipment Finance is emerging. It is changing the traditional financing models and offering businesses an unprecedented degree of flexibility. Linxfour is in the forefront of this transformation in leveraging Industrial IoT in order to bring a completely new style of finance that will benefit operators and equipment manufacturers. We look at the complexities of Pay Per Use financing and its impact on sales in difficult conditions.
Pay-per Use Financing is a powerful tool
Pay-per-use financing is a game changer for companies. Instead of rigid fixed-priced payments, companies pay on the actual use of the equipment. Linxfour’s Industrial IoT integration ensures accurate tracking of usage, providing transparency while avoiding hidden costs or penalties if the equipment is not being used to its fullest. This new approach improves flexibility in controlling cash flow. It is particularly important in periods of high demand from customers or poor revenue.
The impact on sales and business conditions
The overwhelming agreement among equipment manufacturers is a testament to the possibilities of Pay per Use financing. Over 94% of the respondents think that this type of financing can increase sales even in difficult business environments. The idea of balancing costs and equipment use can be appealing to businesses that want to maximize their spending. It also allows manufacturers to provide more appealing financing to clients.
Shifting from CAPEX to OPEX: Accounting Transformation
Accounting is a key difference between traditional leases as well as Pay-per Use financing. With Pay-per-Use, companies undergo a major transformation by shifting from capital expenses (CAPEX) to operating expenses (OPEX). This is a major impact on financial reporting, as it offers a more accurate understanding of the cost associated with revenue.
Unlocking Off-Balance Sheet Treatment under IFRS16
The adoption of Pay-per-Use financing also brings forth a strategic benefit with regards to off balance sheet treatment, an important aspect of the International Financial Reporting Standard 16 (IFRS16). In transforming the financing for equipment costs into a liability, companies can keep this off their balance sheet. This does not only decrease financial leverage but also lowers hurdles to investment and makes it an appealing choice for businesses that want flexible financial structures. Click here IFRS16
Intensifying KPIs and TCO in the event of under-utilization
In addition to the off balance sheet treatments, the Pay-per-Use model contributes to enhancing key performance indicators (KPIs) like free cash flow as well as the Total Cost of Ownership (TCO) particularly in cases of under-utilization. Leasing models that are based on traditional methods can pose problems when equipment isn’t being used in the way that is expected. Pay-per-Use lets businesses avoid the obligation of paying fixed fees for assets that aren’t being utilized. This improves their overall performance as well as financial performance.
The Future of Manufacturing Finance
As companies continue to navigate a complex economic landscape in rapid change, innovative finance methods such as Pay-per-Use set the stage for a stable and flexible future. Linxfour’s Industrial IoT approach benefits not only equipment operators and manufacturers and suppliers, but also aligns with the trends of businesses searching for affordable and flexible financing solutions.
In the end, the introduction of Pay-per-Use finance, along with the change in accounting treatment from CAPEX to OPEX and off-balance sheet treatment under IFRS16, marks a significant development in manufacturing finance. Businesses are striving for cost-effectiveness and financial agility. Adopting this new finance model is essential to keep up with the times.