Buying vs. leasing your payment terminal: what to check before you sign

A new payment terminal usually shows up for the same few reasons: the old one breaks down, you're moving locations, or you're opening a second one. The question comes up fast. Should you buy the device outright, or lease it for a monthly payment? There is no universal right answer. The better choice depends on your cash flow, how long you plan to keep the device, and what the lease contract actually says once you read the whole thing.

Buying a terminal, whether it is a handheld device like the Clover Flex or a countertop unit like the Ingenico Desk 5000, means paying the full price once and owning it from that point on. Leasing means paying a fixed amount every month to the company that keeps ownership of the device, under a contract that sets out its length and what happens when it ends.

What buying actually means

Buying gives you immediate ownership. The cost is paid once, then spread across your books as depreciation rather than deducted in full the year you bought it. According to the Business Development Bank of Canada (BDC), buying outright is usually cheaper overall than leasing with the intent to buy later. Buying also opens the door to used or refurbished equipment, an option leasing, which is generally limited to new equipment, does not usually offer.

The tradeoff is that maintenance and replacement after a breakdown fall on you, not on a lessor. You also need the full amount up front, which can strain cash flow for a business that is just starting out or going through a tight stretch.

What leasing actually means

Leasing spreads the cost into predictable monthly payments, which puts less pressure on cash flow, particularly for an unstable or fast-growing business, according to BDC. Maintenance and repair usually fall to the lessor, which suits a business with little internal capacity to handle that itself. Leasing also fits equipment with a short useful life or that needs frequent upgrades, which can describe a terminal that has to keep up with card security changes.

On the other hand, you never own the device unless the contract includes a purchase option, and the total paid over the full term often exceeds the upfront purchase price. Some businesses split the difference: leasing the new equipment customers see at the counter, and buying used equipment for whatever stays out of sight.

What Quebec law requires in a lease contract

Quebec's Civil Code sets baseline obligations for any lease of movable property, regardless of its length. The lessor has to provide equipment in good condition and let you use it for the full term. You, in turn, have to pay on time and take reasonable care of the equipment, according to Éducaloi.

For contracts of four months or longer, two clauses come up often and are worth reading closely. A purchase option clause gives you the right to buy the leased device at the end of the term, at a price set in advance. A guaranteed residual value clause commits you to the device holding a minimum value, agreed at the start, by the end of the lease, which can mean fees if wear exceeds what was expected. Once either clause appears in the contract, the law requires the contract to be in writing, not just verbal or agreed by email.

The tax treatment is not the same

A purchased device is a capital expense. It is not deducted in full the year you buy it, but spread over several years as a capital cost allowance, according to Revenu Québec's guide on the subject. A lease payment is generally treated as a regular operating expense, deductible in the year it is paid. The gap between the two can have a real effect on your business tax return, and is worth checking with your bookkeeper or accountant before you sign anything, not after.

An equipment loan from a bank is also a third path, between paying cash and leasing from a supplier, for a business that would rather finance the device while still owning it from day one.

Questions to ask before you sign

• Who is responsible for maintenance and replacement after a breakdown: you, or the lessor?
• Does the contract include a purchase option at the end of the lease, and at what price?
• Is there a guaranteed residual value clause, and is the contract in writing as the law requires when one is included?
• What is the total cost over the full term, compared to the price of buying the device new?
• What condition must the device be returned in, and what fees apply if it is not?

Neither option is the right one by default. An established business with cash on hand often does better buying. A growing business that would rather keep its cash for something else, or that will swap devices in a year or two, often makes more sense leasing. What matters is answering the five questions above before you sign, not after.