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The Concept of a Rental

Benefits of a rental

The computer, office automation and high technology asset market is the most rapidly changing market in

the world today. Historically, users need continued growth. Keeping up with technology,

continually improving service to clients and improving operational efficiency has become a huge factor in

these industries.

It is against this background that specialized financing has become more and more of a factor in

computer, office automation and high technology asset market usage. Existing methods of financing,

although adequate, have not addressed the problems incurred in a continually changing market.

In order to address these problems, the emphasis has changed from “WHAT IT WOULD COST TO BUY?”

to “WHAT IT WOULD COST TO USE?”.

That is the reason why rental financing was developed and introduced to the computer

and office automation market. Rental financing is aimed specifically at the computer, technology and

office automation market and caters for change over a period of time. It is therefore

possible for users to expand their systems as their business needs indicate, and to do so without drastically affecting

their budgets and cash flow.

Although flexibility is the main benefit of the computer or office equipment rental agreement, the package has

also been designed to offer the highest possible tax advantages. It also to caters for the high inflation rate

economy of today.

Structured financing allows savings in today’s money (the most expensive) and allows inflation to erode the

value of money over a period of time. This is not only more economically viable, but also improves return on

investment of the computer system and office equipment itself.

The Netservice Policy is to ensure that clients are continually kept abreast of the latest financial

developments in the computer, office automation and high technology asset market, and to address the individual

needs of these clients.

It is with this understanding of the industry that Netservice offers rental financing on all computer systems,

office equipment and high technology assets.

Tailor made financing packages are created depending on the client’s requirements to cater for cash flow

and budget constraints, rent free periods, residual values, bullet payments, etc. An overview of the major

aspects of the rental concept is included for your perusal.

The following are the salient features of a rental agreement:

1. Uses and enjoyment

The rental concept allows the full use of the equipment, but does not confer right of ownership. A rental

may be defined as the uninterrupted use of equipment for a period of time, at an acceptable cost to the user.

Through careful planning, the Netservice clients can enjoy the full equipment at the lowest possible cost.

Netservice's intention is always to provide the most cost effective structure at the lowest possible installment.

2. Tax Effects

Rentals are 100% tax deductible as an operating expense. The budget is therefore not affected by Capital

Expenditure constraints and allows the user flexibility to upgrade within the rental period, or within a

fiscal year. Value Added Tax is not capitalized on the agreements but paid monthly on the rental.

This provides valuable savings at the time of upgrading as VAT is only paid for the period the equipment is

in use.

3. Terms

This can vary but a three-year agreement is the norm for computer systems. Forty eight-month and

sixty month periods are also available for office equipment and other high technology assets.

4. Escalation

Normally an escalation rate of approximately the expected rate of inflation is built into the rental structure

in order to reduce the cost to the user of a particular system and has important ramifications. It takes

into account the fact that, when considering future rentals, inflation will erode the value of money,

thereby keeping the payments equal in real terms measured today.

However, computer systems cannot be financed with an escalation system!

5. Accounting

As a rental is an operating expense, it is not reflected on the balance sheet in any way. It is shown

as an operating expense in the income and expenditure statement.

Adapted from Financial Services Provider

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