What are financial costs?

Financing costs are understood to be those costs incurred by a company, as a result of the use of third-party funds to acquire assets. The financial costs cover both the price of money, that is, interest, as well as other types of remuneration such as commissions, administration costs, or others, related to the formalization of the operation. Since any financing operation involves financial costs that must be paid, normally, over long periods of time, it may precisely happen that the amount of financial costs becomes a significant part of the costes that the company must satisfy.

Especially in the case where you have followed a policy of indebtedness or leverage considerable. An alternative to the excess of financial costs, is precisely to finance with own capital, so that investors become partners or shareholders of the company. In this case, although they will be entitled to profit sharing when it occurs, it will not be necessary to pay interest for the use of this type of capital.

Examples of financial costs

Some examples of financial costs are the commissions of credit institutions. For example, the maintenance fee for a current account, or the commissions for opening and closing a line of credit. All this, in the latter case, without prejudice to the need to pay the corresponding interest for the capital provided. In reality there are very many p├ęstamos, credit or debit cards that must pay annual commissions, opening or cancellation commissions.

All this, without prejudice to the fact that any deferral of payment, entails the payment of interest, which, in the worst case, can be default interest or delays, if the return occurs beyond the term established in the corresponding contract. For this reason, payment terms must be properly managed to avoid this type of default interest, which is punitive in nature and is usually very high.

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