Monday, 25 November 2019

Unit 11: Leasing and Factoring


                                          Unit 11: Leasing and Factoring    

Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments.

Under normal circumstances, an owner of property is at liberty to do what they want with their property.

However, if the owner has surrendered possession to another (i.

the tenant) then any interference with the quiet enjoyment of the property by the tenant in lawful possession is unlawful.

A lease contract can be classified on various characteristics in many categories like Finance Lease and Operating Lease; Sales & Lease back and Direct Lease; Single investor and Leveraged lease and Domestic and International lease.

There are many financial, legal and tax related aspects of leasing.

Financially, leasing is more advantageous than harmful.

But in India, the tax benefits given to the leasing companies are not substantially as good as their counterparts in developed economies.

Factoring may be defined as the relationship, created an agreement, between the seller of goods/services and a financial institution.

Forfeiting is trade finance extended by a forfeiter to an exporter seller for an export/sale transaction involving deferred payment terms over a long period at a firm rate of discount.

In addition to the rendering of factoring services, banks financial institutions also provide bills discounting facilities provide finance to the client.

Indian Financial System     The bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of that instrument.

Account receivables: Any trade debt arising from the sale of goods/ services by the client to the customer on credit.

Client: He is also known as supplier.

It may be a business institution supplying the goods/ services on credit and availing of the factoring arrangements.

Contract: A contract is an agreement enforceable by law.

Contract of indemnity: A contract whereby a person promises to make good the loss caused to him by the conduct of the promisor himself or any third person.

Customer: A person or business organisation to whom the goods/ services have been supplied on credit.

He may also be called as debtor.

Eligible debt: Debts, which are approved by the factor for making prepayment.

Lease: Lease is a contract conferring a right on one person (called a tenant or lessee) to possess property belonging to another person (called a landlord or lessor) to the exclusion of the owner landlord.

Open account sales: Where in an arrangement goods/ services are sold/supplied by the client to the customer on credit without raising any bill of exchange or promissory note.

Prepayment: An advance payment made by the factor to the client up to a certain percent of the eligible debts.

Retention: Margin maintained by the factor.

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