In the rapidly changing world of finance for manufacturing, the idea of Pay-per-Use Equipment Finance is emerging as an innovative force that is changing traditional models and providing unprecedented flexibility to businesses. Linxfour is in the forefront of this new revolution in leveraging Industrial IoT in order to create a new era of finance that benefits operators and equipment manufacturers. We examine the complexities of Pay per Use financing, its impact on sales under difficult conditions, and how it transforms accounting practices, shifting from CAPEX to OPEX and freeing the responsibilities of a balance sheet as per IFRS16.
Pay-per-Use Financing: The Power of It
At its core, Pay per Use financing for manufacturing equipment is a game-changer. Instead of fixed, rigid payments, businesses pay based on the actual usage of their equipment. Linxfour’s Industrial IoT integrate ensures accurate utilization tracking, ensuring transparency. It eliminates any cost-savings or hidden penalties if equipment is not being used to its fullest. This groundbreaking approach increases flexibility in managing cash flow especially during times when demand fluctuates and low revenue.
Business and sales conditions
The overwhelming majority of equipment makers is testimony to the benefits of Pay per Use financing. Even in tough economic times, 94% of manufacturers think this method will help boost sales. This ability to directly connect costs to the use of equipment does not just attract companies that want to reduce their expenses, but also creates a enticing environment for manufacturers that can offer more appealing financing options to their customers.
Accounting Transformation: Shifting from CAPEX to OPEX
One of the key differentiators between traditional leasing and Pay-per-Use financing is in the accounting aspect. Pay-per-Use financing is transforming businesses through the shift from capital expenses to operating costs. This is a major impact for financial reporting since it provides a more accurate image of the revenue-related expenses.
Unlocking Off-Balance Sheet Treatment under IFRS16
Pay-per-Use financing provides the advantage of traditional financing in that it can be used to get an off balance sheet treatment. This is a major issue in International Financial Reporting Standard 16(IFRS16). Since it transforms the equipment financing costs into liabilities, businesses are able to keep this off their balance sheets. This does not only decrease financial leverage but also lowers hurdles to investment which makes it a desirable idea for businesses seeking flexible financial structures.
If there is a problem with under-utilization, KPIs can be improved and TCO increased.
Pay-per-Use model as well as being off balance sheet, is also a key factor in improving key performance indicators, such as cash flow, free and total cost of Ownership (TCO) especially when there is under-utilization. Leasing models that are traditional often cause issues when equipment fails to meet the expected rates of utilization. With Pay-per Use, businesses do not have to deal with the burden of fixed payments for assets that are not being utilized, thereby optimizing their financial performance and improving overall efficiency.
The Future of Manufacturing Finance
As companies continue to traverse a complicated economic landscape with rapid changes, novel techniques for financing like Pay-per-use can set the foundation for a more flexible and stable future. Linxfour’s Industrial IoT driven approach is not only beneficial for equipment operators and manufactures, but it also aligns with a broader trend where companies are looking for innovative and sustainable financial solutions.
This is why Pay-per-Use and the change in accounting from CAPEX (capital expense) to OPEX (operating expenses) as well as the off balance sheet treatment of IFRS16, are significant improvement in the financing of manufacturing. In a business environment which is always changing companies are seeking ways to improve their financial flexibility, efficiency, and performance indicators. This unique financing model will help them reach these goals.