Bank manager is your best partner
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New plant and machinery can also be acquired by leasing. Under a leasing contract, the customer (the lessee) has use of the equipment, though it is still owned by the bank's leasing company. Leasing facilities are generally arranged tor amounts over £100,000 but the bank may be able to arrange for smaller sums if required.
The capital cost of the asset, its expected working life and earning capacity are all taken into account when determining the primary period of the lease and the pattern of rental payments.
Once these payments have been fixed, they are not usually affected by subsequent changes in interest rates and they are fully allowable for tax purposes. At the end of the lease, the customer has the right to continue using the asset at a nominal rental.
Factoring is an ideal means of finance for an expanding company needing finance for its debtors. It speeds up cash flow, takes a great deal of the burden of clerical work from a company's sales staff, and provides credit insurance up to certain approved limits. It also has the effect on the balance sheet of reducing debts and therefore providing a possibility for the firm to borrow for other purposes.
A company's bank manager can arrange an introduction to a factoring company, which will first take over and pay for the business's existing invoices. It will then continue to make cash payments as requested of up to about 80 per cent of the value of each new sales invoice raised. The balance, less charges, is paid on the date when the invoice is settled.
The factoring service provides company sales ledger accounting control and can sometimes be provided for export business, thereby removing many of the uncertainties of dealing with overseas customers.
Generally, factoring means that a company is not forced into a position where it has to grant discounts for a quick settlement to its own customers. It in creases a company's cash resources and provides a built-in safeguard against over-trading in a growing company, because cashflow is immediately linked to the volume of sales.
It may be, however, that a company is generating suf ficient income for all its needs, including modernisation and expansion, without really knowing it, and that its requirement is not for additional finance but for a re-utilisation of the money already tied up in the business.
In that case, the bank can still help with practical and sym pathetic advice; for the good banker not only lends money, he provides himself as a financial adviser and friend.