Business Outright Purchase

You assume risk

Business Outright Purchase is Popular with:

1,000 + vehicle fleets. Typically cash-rich companies in such areas as banking and finance, pharmaceuticals, etc.

How Outright Purchase Works:

Vehicles are financed by deposits or loans. The operator takes the risk of maintenance, repair and disposal values, but can give day to day responsibilities to a fleet management company, for a fixed monthly fee.

Advantages of a Business Outright Purchase

• Perceived flexibility; with outright purchase, vehicles are bought and sold as needed, without fear of penalty charges.
• Low funding costs: if cash comes from deposits or internal funds.
• Writing down allowances: 25% of the capital cost of the vehicle can be offset against tax each year to a maximum of £3,000 pa.

Disadvantages of a Business Outright Purchase

• Cash flow: significant front-end costs may divert money away from being invested in the company. There’s a minimum opportunity cost - what the money might be expected to earn if invested - of around 3%.
• Exposure: with outright purchase the fleet becomes vulnerable to residual value variations and exceptional maintenance costs. This method of funding needs high calibre expertise to manage well.
• VAT only recoverable if vehicles are used 100% for business.

Summary

Outright purchase is popular with large organisations which can enjoy economies of scale and spread the risk over a large number of vehicles. However, less than 5% of fleets with fewer than 50 vehicles buy outright and that’s likely to decrease in future as purchasing loses ground to contract hire. In addition the manufacturer support enjoyed by some of the funding options is not present on outright purchase.