Tag Archives | sale

Terms of Sale

See Also:
Net 30 Credit Terms
Net Sales
Credit Sales
Daily Sales Outstanding (DSO)
Commercial Risk

Terms of Sale Definition

Terms of sale definition is the terms which a buyer and seller agree upon. They are as important in exporting as they are with domestic sales. Terms of sale serve the purpose of creating uniform expectations between buyers and sellers. In this way, terms of sale help each party to avoid disagreements which cancel the sale or cause legal liability.

Terms of Sale Explanation

Terms of sale, explained also as the cost, amount, and distribution terms regarding a sale, are essential to a fair deal. They explain, in detail, the exact agreement for a sale: cost, amount, delivery, payment method, payment timing, trade credit, credit terms, and more. They are also essential because they allow each party in a transaction to leave satisfied.

Terms of sale become more important when importing or exporting goods. Here, the terms of sale (incoterms) explain how and when shipping occurs, who pays international duties and taxes, and other factors established by international chamber of commerce regulations. This allows discrepancies to be avoided and properly processed, preventing lawsuits and even international incidents.

Terms of Sale Example

Sophia imports and exports goods to China. She has a hard job; making sure deals are succinct, products are delivered, governments are appeased, and customers are satisfied. She deals closely with terms of sale; 2 10 net 30, delivery paid for by the seller, and she covers the duties.

On a recent shipment of consumer products she is reviewing the terms of sale agreement. This tells her all of the important information regarding the purchase. She makes sure to read the fine print.

In this document she finds a typo which makes the terms unclear. Rather than accepting this she contacts the seller. Sophia knows better than to let this problem go without fixing. Sophia finds, through this, that she and the delivering company have different expectations. Luckily she found this now, so she begins renegotiation. She is able to recover a better deal than she was originally presented with. All of this because she checked the terms of sale international shipping document.

For more ways to add value to your company, download your free A/R Checklist to see how simple changes in your A/R process can free up a significant amount of cash.

terms of sale definition

Strategic CFO Lab Member Extra

Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

terms of sale definition

Share this:
0

Sale and Leaseback

See Also:
Lessor vs Lessee
Lease Agreements
Capital Lease Agreement
Operating Lease
Working Capital

Sale and Leaseback Definition

The sale and leaseback definition is a transaction in which a company sells its property to another company and then leases that property. The company that sells the asset becomes the lessee, and the company that purchases the asset becomes the lessor. In this type of transaction, the lessor is typically an insurance company, a finance company, a leasing company, a limited partnership, or an institutional investor.

The property sale is done with the understanding that the seller will immediately leaseback the property from the buyer. The details of the lease agreement are arranged for a specific period of time and a set payment rate. Depending on the type of lease arrangement, whether it’s an operating lease or a capital lease, the lessee may or may not record the leased property on its balance sheet.

Are you in the process of selling your company? The first thing to do is to identify “destroyers” that can impact your company’s value. Click here to download your free “Top 10 Destroyers of Value“.

Sale-and-Leaseback Justification

Why would a company sell an asset and then lease it? The company may want to free up cash tied up in the property. Also, the company may arrange for a capital lease, in which case it can keep the asset and the liability off of its balance sheet. Finally, since the sale-and-leaseback arrangement is a type of loan, the company may want to enter into this type of deal if the lease payments are lower than the interest payments it would have had to pay if it had borrowed money to finance the purchase of the asset.

Sale-and-Leaseback Advantages

The primary advantage of the sale and leaseback arrangement is that the company selling and then leasing the asset is essentially releasing the cash tied up in that asset prior to selling it. It also continues to benefit from the usage of the asset. If the lease is a capital lease, the company can keep the value of the property off of its balance sheet. Depending on the terms, the arrangement may be cheaper than financing the purchase of the property with a bank loan.

Sale and Leaseback Example

Let’s look at a sale and leaseback example. Imagine a company owns an asset but is having difficulty freeing up cash for current liabilities and short-term debt payments. The company has poor credit, and a bank loan would be very expensive.

The company could instead choose to sell one of its long-term assets to an insurance company. Immediately, they should arrange to lease that asset back for a specific period of time. If the insurance agrees to lease the asset for a rate less than the interest rate the bank wanted to charge the company for a loan, then the sale-and-leaseback arrangement with the insurance company would be the superior alternative.

This way the company is relieved of its cash shortage. It uses the proceeds from the sale to payoff short-term debts and liabilities in order to continue operations. It is also able to continue to benefit from the utilization of its asset. If you’re looking to sell your company in the near future, download the free Top 10 Destroyers of Value whitepaper to learn how to maximize your value.

sale and leaseback, Sale and Leaseback Example, Sale and Leaseback Definition

Strategic CFO Lab Member Extra

Access your Exit Strategy Checklist Execution Plan in SCFO Lab. The step-by-step plan to get the most value out of your company when you sell.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

sale and leaseback, Sale and Leaseback Example, Sale and Leaseback Definition

Share this:
4

LEARN THE ART OF THE CFO