Procurement Guidelines:
Generally when a vehicle's procurement is considered. The first question that comes to mind is how to pay for it and the affordability of the purchase decision over a period of time.
The net effect of any payment option is to ensure that the "net total operating cost" of the business is at its lowest possible point, resulting in higher profit margins.
It is a fact that financing a vehicle over terms is more expensive than a cash purchase.
Considering the above, we would like to bring the following to your attention:
Financing a new vehicle is a matter of timing the business cash-flow and expense, therefore gaining maximum benefit from Tax Allowances granted by the receiver of revenue.
To make a sound procurement decision, all avenues need to be explored. And the finance path has many options. The most common path is an installment sale agreement where you take ownership of the vehicle at the end of term. Other finance methods are long term rental, operating rental and full maintenance lease. There are other methods of finance but these are the more common alternatives.
Additional Information:
Finance options where assets are capitalised, and where the receiver allows depreciation, should now be carefully re-considered. Off-balance sheet options increase bottom line margins, and inflation reduces your net cost of the monthly repayments.
The discounted cash flow method could assist where the lowest net present value of the calculation should be the benchmark in deciding which finance option to choose. This accounting calculation is done for all cash flow payments over a period of time, and discounting those values back into a net present value.
The finance term of the vehicle should normally be matched with the expected life span of the vehicle and its application. The vehicle replacement is also effected by increased or unexpected maintenance costs as more kilometers are covered. This is dealt with in the Maintenance contract article, which should also be incorporated into the total cost analysis.
Limited budgets, "lean" cash-flow planning as well as project financing could be accommodated by accelerated or decelerated re-payment structures. These are negotiable with major banks, and could be aligned with the business cash-flow.
