If you`re looking for a financing option that allows you to spread out payments for a large purchase over a set period of time, then a hire purchase agreement might be the right choice for you. And if you`re a business owner using Xero as your accounting software, you`ll be happy to know that there`s easy integration between the two.
Here`s what you need to know about hire purchase agreements in Xero:
What is a hire purchase agreement?
A hire purchase agreement is a type of financing option that allows you to acquire an asset (such as a vehicle, equipment, or machinery) without paying for it upfront in full. Instead, you make regular payments over a set period of time.
During this time, ownership of the asset remains with the finance company until the final payment is made. Once the final payment is made, ownership of the asset is transferred to you.
How does it work in Xero?
When you set up a hire purchase agreement in Xero, it will create a liability account for the amount of the loan. Each payment you make will be split between the interest expense and the reduction of the liability.
Xero will also record the asset as a fixed asset on your balance sheet, with its purchase price as the initial value. Over time, the value of the asset will be reduced as you make payments towards the liability.
Why use a hire purchase agreement?
A hire purchase agreement can be a good option for businesses that need to acquire assets but don`t have the cash flow to do so upfront. It can also help with budgeting, as you`ll know exactly how much you need to pay each month for the duration of the agreement.
Using Xero to manage your hire purchase agreement makes it even easier, as you can easily track your payments and the value of the asset over time. Plus, the integration with Xero means that all your financial information is in one place, making it easy to manage.
If you`re considering a hire purchase agreement, make sure to do your research and compare options to find the best fit for your business. And if you`re using Xero, be sure to take advantage of the integration to simplify the process even further.