As a business owner, you realize that keeping an eye on your cash flow and balance sheet is one of your core “best practices.” One method for controlling cash flow and improving earnings metrics is to use a hire purchase contract (also known as HP or never-never) instead of purchasing expensive products outright. Here are the basics of a hire purchase approach to obtaining the high-ticket items your company needs.

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Basics of Hire Purchase

Agreeing to purchase goods in installments over a period of time is the foundation of hire purchase. It is almost identical to an installment plan, except that in a hire purchase, the seller owns the goods until you make the final payment (like lease-to-own or rent-to-own). Whereas in an installment plan, you (the purchaser) own the goods at the outset. This may make a difference on your balance sheet and have some positive tax implications for you, so be sure to consult with your accountant to select the most advantageous method. Businesses frequently use hire purchase to show more positive earnings results because the monthly payments are not considered debt.

A hire purchase plan allows you to purchase an expensive item that you may not otherwise be able to pay for. You are essentially “renting” the item on a month-to-month basis until the sum of your payments matches the purchase price plus interest. At that point the hire purchase agreement may contain an option that you exercise for transfer of ownership, or you may just own it outright. This method of purchase is especially beneficial for business start-ups that have not yet established credit sources and have little collateral.

Because ownership is not transferred until the end, a hire purchase plan offers more protection to the vendor than other sales or leasing methods for unsecured items since the items can be repossessed more easily.

A Hire Purchase Agreement

What constitutes a good hire Purchase Agreement? The benefit of a written agreement is that it incorporates important information. For example, naming the parties involved may seem elementary, but it creates an important record of transfer of ownership. In addition, a detailed description of the property helps protect both parties so that no controversy arises later about the quality of the goods. And, of course, specifying the precise monthly payments and the timeline for payments is essential.

In order to make sure that you incorporate all the proper elements, you can use our Purchase Agreement as a model. The benefit of using our form is that it has been drafted by legal professionals and you can be assured that they meet your state standards when you use the option to customize by state. This Purchase Agreement can be used for a purchase, a transfer of property (even if you’re giving it away), an installment plan, or a hire purchase plan. Just modify the basic agreement to meet your needs. If you want further review by an attorney, you can use the option on the Purchase Agreement page to get in touch with one of our lawyers.

Get started Start Your Purchase Agreement Answer a few questions. We'll take care of the rest.

Get started Start Your Purchase Agreement Answer a few questions. We'll take care of the rest.