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How Loan Terms Affect Equipment Loan Payments

Posted November 19, 2021

The end of the year is upon us and tax season is just around the corner. Now is a great time to review some of the, often overlooked, business expenses that may seem mundane and insignificant, but left unchecked can be costing your company thousands of dollars.

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review any ongoing automatic charges

In this day and age of electronic billing and electronic payments, it’s easy to set up automatic payments for recurring charges. While helpful to ensure you don’t miss payment deadlines, it’s also easy to forget about these charges, even if you aren’t actually using the services any longer. Many bank payment platforms now have easy filters to help identify ongoing, recurring charges.

  • Insurance payments – healthcare, liability, equipment and vehicle coverage, property, unemployment, cyber threat, etc.
  • Maintenance fees
  • Services and subscriptions
  • Property and office rent
  • Energy usage
  • Website and other marketing expenses

review insurance coverages

Similar to automatic charges, it’s easy to adopt a set-it and forget-it mentality when it comes to insurance. You simply renew your existing policies. Your business inevitably changes each year so it’s important to review your policies to ensure you have the appropriate coverage for your business operations. This applies to all your insurance policies (healthcare, vehicle, general liability, etc.) and your insurance agent can help with this review process and the associated risk assessments.

  • Deductibles
  • Coverage allowances and limitations
  • Riders and gap coverage

evaluate outsourced services

Utilizing outsourced services is a good way to keep employee headcount and benefits payments low. Circumstances and conditions change so it’s a good idea to evaluate the services and contract terms on a regular basis. Additionally, sometimes it makes sense to bring currently outsourced services in-house.

  • Cleaning and janitorial
  • Groundskeeping, landscaping, plant maintenance
  • Security
  • Payroll

review equipment loans and leases

If you have financed or leased equipment, especially if you have multiple pieces and several loans or leases, a regular evaluation of these is recommended. Oftentimes loans can be consolidated to help reduce monthly payments and simplify processing. Many leases come with balloon payments or end-of-term buy-outs that can be quite high, so you need to plan ahead to ensure you have the cash to make those payments. You can sometimes avoid these balloon payments by purchasing or refinancing the leased equipment.

  • Consider extending terms to reduce monthly payments
  • Consolidate debt for easier processing
  • Convert rentals to purchases to reduce monthly payments and potentially take advantage of Bonus Depreciation for tax purposes
  • Review for balloon payments or end-of-term buy-outs

assess accounts receivable and accounts payable processes

Discounted payment terms can have a big effect on cash flow, both from an accounts receivable and accounts payable standpoint. Additionally, ancillary charges such as wire charges and credit card fees can impact the bottom line.

  • Consider accounts receivable financing to get payment for your invoices faster, thus enhancing cash flow
  • Review accounts payable processes – are you incurring any late fees due to delayed payments; could you keep your cash longer by delaying payments?
  • Consider receiving/making payments via ACH rather than wire transfer or credit card

review contracts

Similar to ongoing automatic charges, it can be easy to overlook contract terms such as automatic renewal dates and notification deadlines. In some cases, you many no longer need a service, but if you miss the renewal notification deadline, you could be locked in for another term without even realizing it.

It’s also important to evaluate usage of the service to ensure you aren’t paying for more than you are using. For example, many software contracts are based on the number of seats, or users, and if your staff has changed, you may be paying for more seats than you are using.

Consider payment terms and contract length discounts. Some services offer discounts for upfront payments, automatic billing, or extended contract terms. Be sure to ask about any available discounts or current promotional pricing.

  • Check renewal dates
  • Compare usage to contract terms
  • Evaluate payment terms and contract length discounts

prepare for tax deductions

Consult with your tax attorney or tax preparer to review possible tax deductions. These could be related to equipment purchases (Section 179 and Bonus Depreciation), net operating losses, and any number of other tax items. Especially with the various tax changes and loans related to COVID relief, this year it’s especially important to fully review your options.

  • Section 179 and Bonus Depreciation
  • Carry forward of any previous net operating losses (NOL)

evaluate incidental expenses

Incidental expenses, while typically small, can add up over time. Some are often paid for out of a petty cash account which can make them harder to track.

  • Supplies – office, breakroom, maintenance, etc.
  • Employee recognition

In general, many companies are simply busy operating and often don’t have, or don’t take, time to conduct this type of review on expenses. But a yearly review can be quite helpful to the bottom line.

At CCG, we're happy to assist in any way we can. Need help reviewing your equipment loans or leases? Give us a call? Considering accounts receivable financing, our affiliate company, Commercial Funding Inc. can help with that as well. 

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