In the rapidly changing world of manufacturing finance, the idea of Pay-per-Use Equipment Finance is emerging as an innovative force that is changing conventional models and offering unprecedented flexibility to companies. Linxfour, at the forefront of this new trend, uses Industrial IoT to bring a new way of financing that will benefit both manufacturers and equipment operators. We examine the complexities of Pay-per-Use financing, the impact it has on difficult situations and how it will transform the way we conduct business by shifting from CAPEX into OPEX. This frees balance sheet treatment according to IFRS16.
Pay-per Use Financing is a powerful tool
At its core, Pay per Use financing for manufacturing equipment is a game-changer. Instead of fixed, rigid payments, companies pay based upon the actual usage of the equipment. Linxfour’s Industrial IoT integrate ensures accurate usage tracking, which provides transparency. This helps eliminate cost-savings or hidden penalties if equipment isn’t being utilized. This revolutionary approach improves flexibility in the management of cash flows especially during times of fluctuating demand for customers and low revenue.
Impact on business and sales conditions
The overwhelming consensus is that Pay per use financing is a great option. Even in difficult economic times, 94% think that this model is a good method to increase sales. The ability to align costs directly with equipment usage will not only draw the attention of businesses trying to cut costs but makes it a win-win situation for the manufacturers who are able to provide more appealing financing options for their customers.
Transitioning from CAPEX to OPEX: Transformation of Accounting
The accounting aspect is a major difference between traditional leases and Pay-per Use financing. Pay-per-Use financing can transform businesses through the shift from capital expenses to operating costs. This has a huge impact on the financial reporting. It allows for a more accurate representation of the costs that are associated with revenue.
Unlocking Off-Balance Sheet Treatment under IFRS16
Pay-per use finance comes with a distinct benefit, since it is not a part of the balance sheet. This is an important element to be considered when designing the International Financial Reporting Standard 16 IFRS16. In transforming the financing for equipment costs into a liability, businesses can take this off their balance sheets. This is not just a way to reduce financial risk, but also reduces the hurdles to investing. It is a very appealing option for businesses searching for an agile financial structure.
If under-utilization is the cause, KPIs can be improved and TCO raised.
Pay-per-Use models, in addition to being off-balance sheet, contributes to improving performance indicators such as free cash flow and Total cost of ownership (TCO) particularly when there’s an under-utilization. When equipment does not reach the anticipated usage rates traditional lease models could be difficult to manage. Businesses can optimize their financial performance by cutting down on fixed costs on assets that aren’t being utilized.
Manufacturing Finance: The Future
As companies continue to navigate through a complex landscape of economics with rapid changes, novel techniques for financing like Pay-per-use set the stage for a resilient and adaptable future. Linxfour’s Industrial IoT approach benefits not manufacturers and equipment operators as well, but it also aligns with the trends of businesses seeking more flexible and sustainable financing options.
Therefore, Pay-per use together with the accounting change from CAPEX (capital expense) to OPEX (operating expenses) and the off-balance sheet treatment of IFRS16 are a major improvement in the financing of manufacturing. In a time when businesses are striving for financial agility, cost-effectiveness as well as improved KPIs taking advantage of this unique financing model becomes a strategic imperative in keeping ahead in the ever-evolving manufacturing industry.
