Pay-per-Use Equipment Finance, in the ever-changing world of manufacturing finance is emerging as a disruptive technology that is changing the traditional model and offers businesses an unprecedented degree of flexibility. Linxfour is leading the way, using Industrial IoT, to bring the future of financing, which is beneficial for both equipment operators and manufacturers. We look into the intricacies of Pay per Utilization financing, its effect on sales in challenging conditions, and how it transforms accounting practices by shifting from CAPEX to OPEX, unlocking off the responsibilities of a balance sheet as per IFRS16.
The Benefits of Pay-per-Use Financing
Pay-per-use financing can be a game changer for manufacturers. Companies pay based on the actual use of equipment, instead of rigid fixed-priced payments. Linxfour’s Industrial IoT Integration ensures accurate monitoring, transparency, and avoids hidden costs or penalties when equipment isn’t being used. This new approach provides more flexibility in controlling cash flow. This is especially crucial during times when customer demand is fluctuating and revenue is insufficient.
Impact on sales and business conditions
The overwhelming majority of equipment manufacturers is testament to the value of financing through Pay-per Use. Over 94% of the respondents believe that this model will boost sales even under difficult business environments. This ability to direct link costs to equipment usage is not just appealing to companies seeking to optimize their spending, but also creates an attractive opportunity for manufacturers to offer more attractive financing options to their customers.
Accounting Transformation: From CAPEX to OPEX
One of the major differences between conventional leasing and Pay-per-Use financing is the accounting realm. With Pay per Use, businesses undergo a fundamental change in their accounting practices, shifting from capital expenses (CAPEX) to operating expenses (OPEX). This change has profound impact on financial reporting, offering a more accurate representation of the cost that are associated with revenue production.
Unlocking Off-Balance Sheet Treatment under IFRS16
Pay-per-Use financing provides a significant advantage over traditional financing since it permits an off-balance sheet treatment. This is a crucial consideration under International Financial Reporting Standard 16(IFRS16). By transforming the equipment financing expenses into liabilities, businesses are able to keep this off their balance sheet. This lowers financial leverage and minimizes investment hurdles that makes it attractive to companies that are looking for an easier financial structure.
In the event of over-utilization, KPIs can be improved and TCO improved.
Pay-per Use model, in addition to being off-balance sheet, contributes to improving key performance indicators, such as cash flow free and Total cost of Ownership (TCO), particularly when there is under-utilization. Traditional leasing models often pose difficulties when equipment does not meet the expectations of utilization rates. Companies can improve their financial performance by reducing fixed costs on assets that aren’t being utilized. See more at Off balance
The Future of Manufacturing Finance
While businesses traverse a complicated economic landscape in rapid change, innovative finance methods such as Pay-per-Use are setting the stage for a flexible and resilient future. Linxfour’s Industrial IoT approach benefits not manufacturers and equipment operators however, it also aligns with the trend of businesses seeking more flexible and sustainable financing options.
Conclusion: The introduction of Pay-per-Use financing with the accounting transition from CAPEX to OPEX, and the off-balance sheet treatment under IFRS16 mark a major shift in the field of manufacturing finance. In a global manufacturing market that is constantly evolving companies are seeking ways to improve their efficiency, financial agility, and KPIs. This unique financing model could help them meet these objectives.