Financial Leasing Benefits and Export Sale Methods

Leasing and Lease Agreements

Leasing: A lease is an agreement for sale or rent that extends for one year or more. The owner of an asset (lessor) gives the other party (tenants/lessee) the exclusive right to use the asset during the specified time, in exchange for a series of payments (similar to a secured loan).

Key Definitions

• Lease: A convention celebrated between a landlord and tenants that grants the right of use for a particular period of time.
• Landlord: The person who gives the asset to the person using it.
• Tenants: The person who pays the price for the use of the property.
• Rental fee: The agreed amount payable by the lessee for the right to use the asset.
• Market value: The price that the seller and buyer agree upon.
• Residual value: The estimated market value the asset shall have at the end of the lease.

Types of Leasing

Financial Leasing

These are non-cancellable agreements that comply with the following criteria:

1. Transfers ownership of the property to the lessee.
2. Contains a purchase option at a special price.
3. The length of the lease covers 75% or more of the economic life of the rented property.
4. The present value of lease payments is equal to or greater than 90% of the fair value of the property.

Note: If the payment of fees reflects payment for the purchase of assets, separate the main part from the interest.

Operating Leasing

In operating leasing, the lessee does not record the assets as their own, improving their financial indicators. One can use the leased asset in return for the payment of rent or fees; the expense is fully deductible, though sometimes only partially.

Advantages of Leasing

1. Protection against obsolescence: The landlord reduces the risk of obsolescence through leasing.
2. Flexibility: The lease may contain less restrictive provisions than other debt conventions.
3. 100% fixed rate financing: This helps companies to maximize their effective use of capital.
4. Lower cost of financing: For some companies, leasing is cheaper than other types of financing.
5. Off-balance sheet financing: Operating leases do not add debt to the statement of financial position, meaning they do not affect debt ratios.
6. Tax benefits: Operating leases do not add debt to the financial status; the entire cost is absorbed by the results of the company, which diminishes taxable profits.

Manner of Sale in Exports

All exports must indicate and define which actions to take to settle foreign exchange, make returns, and issue invoices.

Export Sale Types

• Sale sign: The value does not support modification. The invoice is issued on the date of shipment. This is valid for any merchandise.
• Sale condition: The final value of the product depends on terms to be agreed upon between the exporter and the overseas buyer. It is valid for merchandise that may suffer deterioration during transport.
• Free consignment sale: This has a reference value which is determined in the foreign market, based on prices there.
• Sale on consignment with free minimum: A minimum final sale value is set; the final value depends on conditions among the negotiators.