Turning Future Lease Payments Into Cash Today
Lease receivables factoring, sometimes called lease receivables discounting, is the sale of a future stream of lease payments. If your business leases equipment to customers, you hold the right to collect rentals over the term of that lease. Instead of waiting months or years to collect, you sell that payment stream to a bank or finance company such as Oak Leasing's funding partners, at a discount, and receive the cash today.
The discount reflects two things: the time value of money, and the credit risk attached to your lessee. A strong corporate lessee on a short remaining term will typically achieve a smaller discount than a longer-dated lease to a weaker credit.
Why Vendors Do It
Selling receivables frees up capital that would otherwise sit locked in your lease book. It moves credit risk off your balance sheet onto the funder, and it means you can keep originating new leases without waiting on customer cash flow to catch up. For growing vendors, it converts a slow-moving asset into working capital that funds the next sale.
How It Typically Works
The finance company underwrites your lessee's credit standing, agrees a purchase price for the receivable, reflecting risk and time value of money, and buys the payment stream. From that point, the funder collects rentals directly, or via an agreed servicing arrangement, while you've already banked the proceeds.