Medical device manufacturers and their banking partners offer alternatives to traditional bank loans. Among the various rental formulas, financial rental and leasing hold a place of choice. What are the differences, and how do you choose? Medical Place advises you.
Leasing and financial rental are financing techniques. They enable a company to use an asset without owning it. The aim is to preserve the company's financial capacity. However, there is one major difference between leasing and finance leasing: the purchase option at the end of the contract.
Financial leasing: leasing without the possibility of buying
This is a contract whose effect is to transfer to the lessee, directly or indirectly, substantially all the benefits and risks incidental to ownership of an asset, whether or not ownership is ultimately transferred.
At the end of the lease, the company has two options:
- Returning the property to the lessor
- Extend the lease if the lessor agrees
Leasing: the possibility of exercising the purchase option
This form of leasing was introduced by law: it involves the leasing of movable or immovable property, whether tangible or intangible, by companies who remain the owners, where this transaction, however it is described, gives the lessee the option of acquiring all or part of the leased property at an agreed price, taking into account, at least in part, the rental payments made.
At the end of the leasing contract, the company has three options:
- Return the asset to the lessor
- Buy the property based on a residual value agreed by both parties when the contract is set up.
- Extend the leasing contract if the lessor agrees
Adjust residual value, control rental costs
In the case of major assets, both in terms of cost and lifespan, it is advantageous to adjust the residual value of the asset. The aim is to manage the amount of rental payments to avoid a heavy financial burden.
Payment terms can be based on constant, declining or specific rents.
On the other hand, the lessee can choose to regularly monitor the residual value of the property he is leasing, and plan for any updates.
Residual value calculation
From an accounting point of view, the calculation of residual value corresponds to the purchase price, less accumulated depreciation.
For a company, depreciation corresponds to the loss in value of an asset over its lifetime, due to wear and tear or obsolescence.
To calculate this residual value, you need depreciation tables to know what rate of depreciation applies to a given type of asset. The level of depreciation is obtained by comparison with similar goods available on the second-hand market. The residual value is high if the period of use of the asset is less than its theoretical useful life.
In equipment leasing, the residual value is generally estimated at between 1% and 6% of the original price excluding taxes.
Lease financing of medical equipment: increasingly sought-after by buyers
The French medical equipment rental market is stronger than the purchase market[1]. Hospital decision-makers, who have long favored purchasing, are increasingly turning to leasing. And with good reason: the advantages of financial leasing of medical equipment are numerous.
The four advantages of renting :
- Freeing up frozen capital. The high cost of rapidly obsolescing equipment absorbs budgets that cannot be spent on other items. Finance leasing is an attractive option, as it only finances the use of the equipment, with no purchase option.
- Play on residual value. The lessor can deduct the estimated resale price from the monthly rent.
- Integrate services. Installation, maintenance and insurance are often associated with medical equipment leasing.
- Manage budgets. Managers can measure the performance of their equipment by comparing monthly costs with the number of procedures performed.
Operating leases: a variant of finance leases
Operating leases are based on the same mechanisms as finance leases. The difference lies in the level of risk taken at the end of the contract. In fact, the risks taken at the end of the lease term are much higher for "OPERATING LEASES", and cannot be taken without the help of an Asset Manager, who will calculate and anticipate a resale value in X years' time.
Such experts are rare on the market. They combine a solid knowledge of products, second-hand resale networks and upcoming technical innovations on the market. That's why not everyone offers this possibility.
Usage-based invoicing: a paradigm shift?
A new offer has arrived on the market: pay-per-use or fee-for-service billing. This option is set to expand over the next few years. It meets specific needs and is not intended to be offered for all hardware. It's a repeat of what happened years ago in the office automation sector, with copiers and their notorious copy costs. Here, risk is shared between supplier and customer. The customer commits to a minimum invoiced volume, and anything above this is invoiced at a lower cost to the customer. The supplier, for his part, earns more revenue. A win-win deal, but not without risk.
All these financing options are offered by local medical partners.
[1 ] https://franfinance.com/actualites/constructeurs-loueurs-distributeurs-de-materiel-medical-quels-arguments-pour-declencher-le-renouvellement-des-equipements/
