What are Financial Expenses? Types, importance

Financial Expenses

In this interesting article we will learn everything about Financial Expenses, what they are for, bank fees, differences, importance and much more. Do not stop reading it, you will surely get answers to all your questions!

When mentioning the term Financial Expenses we think that they are the expenses that arise within a company. These are expenses that occur through the financing of third parties, as well as by the collection of some services that will serve to finance the commercial activity of the corporations, based on their productivity.

What are the Financial Expenses for?

When we want to know what the financial expenses of a company are, studies should be carried out based on its commercial structure, since entrepreneurs and merchants usually use this system to facilitate the commercial and productive flow.

These expenses are partly due to third parties, who resort to lending capital to the corporations that request it. This type of loan can come from a financial institution or from private and public entities.

The corporations go to the commission based on a certain amount of capital, which they require for their own financing. Examples of financial expenses based on your activities:

Interest on money loans, credits or financial debts

The credits are requested from the banks directly by the company, based on the interest rates of a said financial entity with monthly payment, according to the amount requested.

Bank commissions

Based on this, credit cards are used, so that they are used by spending the total of the capital limit and thus solve the financing problems of certain business activities. They are based on the total activities that the entities contribute to the trade, but they must cancel the established interests. When we talk about bank transfers, at the time of making them the bank will charge a small percentage depending on the amount to be transferred.

Activities with currencies from other countries

When corporations need to exchange currency, a monetary deficit will arise. This currency change is due to the fact that corporations must adapt to the currencies that are most booming in the financial market, in order to acquire production processes and raw materials. There are corporations that only work with the currency market.


The premiums that companies acquire for different types of expenses and financial products, both for their structures and for employees, etc., are part of the financial expense.

Provisions update

We are talking about the totality of resources that companies obtain and maintain, but that they do not use until they pay off their debts.

What are financial expenses for companies?

Corporations can place their financial expenses as deductible expenses, based on the Fiscal Policy. But many wonder what deductible expenses are. This type of expense is the total of expenses that differ from the net income, in order to acquire benefits that arise thanks to the payment of taxes. That is, they are all expenses that are subtracted from taxes.

All deductible expenses give corporate or business benefits, through purchases that allow the best management within the company, such as a vehicle that serves as a means of transportation for employees or electronic devices that improve the administrative system. Each of these expenses must have the appropriate documentation when supervising the company or business.

Difference between financial expenses and simple expenses

Many often compare these expenses and confuse them with each other. However, there are some factors that serve to differentiate them, such as: the cancellation of debt for purchase or credit is not considered a financial expense. Since it is only paying off a debt that was part of the company. This is only part of Corporate Finance, so it is established as an economic movement.

However, the interests that accrue based on the credits of the financial entities, if they are part of the financial expenses. Since this expense is based on debt through a third person.

And this type of expense is for the financing of the corporate itself. The capital that is generated transmits a fee, which in turn generates interest that accumulates and forms part of the capital requested in the loan. The interest generated is part of the resources of the corporate or business so they are also part of the financial expenses of the same, being deductible expenses.

What are financial costs in accounting?

Finance costs are reflected in the accounting books and are located in the profit and loss area. These are divided into three sections, debts to third parties, provisions and business debts. These accounts are the reflection of the financial expenses in twelve months.

The different financial expenses and costs should always be quantified, to optimize the total results. Depending on the country, these expenses will be deducted at the end of the results obtained.

Importance of the order of financial expenses

The order of financial expenses is of utmost importance when making your calculations. It will depend on this to maintain an optimal administration of resources and control of said expenses so that they provide benefits to businesses and corporations. When the administration department maintains specific plans based on financial expenses and costs, the interests of the company are kept up to date.

This entails a notable responsibility and commitment on the part of the administrative department since based on this, the result of corporate debts can be obtained and thus budget for the financing of the payments that must be made to settle said debts.

This point allows corporations to maintain stable financing based on capital savings for anticipated expenses in a certain period of time. What it maintains for the company or business is stable based on a positive balance, for future investments.

Currently, programs can be obtained to keep the financial expenses of a business in an orderly and up-to-date manner, solving the best administrative performance. A company that keeps its costs and expenses up to date will know how to manage its financial resources in the best way, that is why it is so important to maintain good control of them.

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