What Exactly Is Hire Purchase?

As a company owner, you understand that monitoring your cash flow and balance sheet is one of your most important “best practices.” Using a hire purchase contract (also known as HP or never-never) instead of acquiring pricey things outright is one approach for regulating cash flow and boosting profits metrics. These are the fundamentals of a hire buy method to acquiring high-ticket products for your business.

The Fundamentals of Hire Buy

The cornerstone of hire purchase is an agreement to acquire items in installments over a period of time. It is similar to an installment plan, except that the vendor keeps the products until you complete the final payment in a hire buy (like lease-to-own or rent-to-own). In contrast, with an installment plan, you (the consumer) own the things from the start. This may affect your balance sheet and have some positive tax ramifications for you, so speak with your accountant to determine the best strategy. Since the monthly payments are not considered debt, businesses commonly employ hire buy to present more favorable profit results.

A hire buy plan enables you to acquire a costly item that you would not be able to afford otherwise. You are effectively “renting” the item on a monthly basis until the total of your payments equals the purchase price plus interest. At that time, the hire buy agreement may include a transfer of ownership option that you execute, or you may just own it outright. This kind of acquisition is particularly advantageous for new businesses that do not yet have established credit sources and have limited collateral.

Since ownership is not transferred until the end, a hire buy plan provides the seller with greater safety than alternative sales or leasing options for unsecured products, which may be seized more readily.

A Hire Purchase Contract

What makes up a solid Hire Purchase Agreement? A written agreement has the advantage of include crucial information. For example, listing the persons involved may seem trivial, yet it generates a crucial record of ownership transfer. Moreover, a clear description of the property protects both parties by preventing subsequent disagreements regarding the quality of the products. Of course, providing the exact monthly installments as well as the payment timeframe is critical.

You may use our Purchase Agreement as a model to ensure that you include all of the necessary parts. The advantage of utilizing our form is that it was written by legal experts, and you can be certain that it meets your state’s requirements if you utilize the option to modify by state. This Purchase Agreement may be used for a purchase, a property transfer (even if it’s a gift), an installment plan, or a hire buy plan. Just edit the basic agreement to match your requirements. If you want more legal scrutiny, you may contact one of our attorneys using the option on the Purchase Agreement page.