The COVID-19 crisis has undermined the cash flow of many companies. More than ever, SMEs and mid-caps need to consolidate their cash flow in order to raise their heads and start their recovery with confidence. Among various options to consider, operating leases have many advantages and can prove very interesting. To explain…
Why has the crisis affected companies' cash flow so much?
During the COVID-19 health crisis, many companies were faced with the partial or total shutdown of their activity. The lack of liquidity (cash receipts) was therefore a major problem for these companies, which, at the same time, had to continue paying their suppliers, repaying their loans, honouring their expenses, etc. The balance between cash inflows and outflows, and therefore cash flow, has been weakened more or less permanently.
Even companies that did not suffer the full force of the crisis have found themselves forced by this unprecedented event to find ways to stabilise their cash flow. However, it is hard to use traditional methods such as lengthening supplier settlement times or reducing customer payment deadlines. Indeed, customers and suppliers have themselves encountered these cash flow problems. This is why it is better to turn to more original solutions, such as operating leases.
Operating leases: a smart solution
Operating leases are a smart solution whereby you benefit from having equipment that is always state-of-the-art without having to take out a loan or affect your investment capacity.
What are the benefits of operating leases in terms of cash flow?
Companies take out operating leases to lease an asset for a certain period of time. They can therefore use the asset for the period set in the contract, in exchange for a monthly payment. The equipment or asset is returned at the end of the contract. There is no option to buy, unlike with a finance lease. Here are the benefits of operating leases in terms of cash flow.
Preserving your investment capacity
By paying only to use your equipment over the lease period, you preserve your investment capacity, which you can use for other purposes, especially for development. Traditional investments in equipment require the mobilisation of large sums, which may weaken some companies, particularly smaller ones. Operating leases are therefore an attractive alternative to traditional investment.
Controlling costs through fixed lease payments
With an operating lease, you can renew your equipment while controlling your costs, and without affecting your cash flow. At the beginning of the operating lease, you know exactly how much you will pay and for how long. Cash outflows are controlled every month and adapted to your capabilities. They can be revised upwards or downwards depending on your needs.
Benefiting from services included in operating leases
Various services are included in operating leases, including after-sales service, maintenance or recovery of the equipment. This lets you avoid unpleasant surprises in the event of a breakdown and, again, you know exactly what your monthly cash outflows will be.
Avoiding cash flow loans
Operating leases prevent the need to take out cash flow loans, i.e. bank loans to get more liquidity. The downside to cash flow loans, as with all bank loans, is that you have to pay interest each month.
Although they can give you some medium-term breathing space, they are not necessarily good in the long term. Conversely, operating leases enable you to limit your debt.
What sectors can use operating leases?
Operating leases can be useful for your cash flow, regardless of your area of activity. They are generally suited to sectors that need to renew equipment frequently and need heavy investment, such as those that need high-performance IT, a large vehicle fleet, mobile devices without having to manage breakages, or costly medical equipment.
Olinn helps you finance and manage your equipment.