UNIT THREE - EXAM NOTES

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UNIT THREE - EXAM NOTES

Factoring | Forfaiting | Bills Discounting | Leasing | Hire Purchase Complete study notes with real-life examples - prepared from PPT slides

PART ONE: FACTORING

One point one. Meaning and Definition

Factoring is an arrangement between a financial institution (called the Factor) and a business firm (called the Client) where the factor purchases the client's book debts (receivables) - either with or without recourse - and also manages credit administration and sales ledger.

According to Peter M. Biscose: Factoring is a continuing legal relationship between a financial institution (the factor) and a business concern (the client) selling goods or providing services to trade customers.

Real-Life Example

One point two. Characteristics of Factoring

One point three. Modus Operandi (How Factoring Works)

Step-by-Step Process:

Real-Life Example

One point four. Types of Factoring

Invoice Discounting Example

B) Export Factoring

Real-Life Example

C) Full Service / Conventional Factoring (Without Recourse)

Real-Life Example

D) Maturity Factoring

Real-Life Example

E) Advance Factoring

F) Bank Participation Factoring

Real-Life Example

One point five. Functions of a Factor

One point six. Advantages of Factoring

One point seven. Factoring in India

Key RBI Recommendations (Kalyanasundaram Committee):

PART TWO: BILLS DISCOUNTING

Real-Life Example

Two point two Steps in Bills Discounting

Two point three Factoring versus Bills Discounting

Three point one Meaning and Definition

Real-Life Example

Three point two Parties in Forfaiting

Three point three Mechanism of Forfaiting (Step-by-Step)

Three point four Costs in Forfaiting

Three point five Benefits of Forfaiting

Three point six Problem Areas in Forfaiting in India

Three point seven Factoring versus Forfaiting

Four point one Definition of Leasing

Real-Life Example

Four point two Main Features of Leasing

Four point three Benefits of Leasing

To the Lessor:

Four point four Disadvantages of Leasing

To the Lessor:

Four point five Types of Leases

Real-Life Example

B) Operating Lease

Real-Life Example

C) Sale and Lease Back

D) Direct Lease

Real-Life Example

E) Single Investor Lease

Example

F) Leveraged Lease

G) Sub Lease

H) Domestic Lease vs. International Lease

Four point six Main Clauses in a Lease Agreement

Four point seven To Buy or Lease: A Crucial Decision

Lessee's Point of View - Reasons to Buy:

Lessor's Perspective - Why Lease Assets:

Lessor's Risks:

Four point eight Major Leasing Institutions in India

PART Five: Hire Purchase

Real-Life Example

Five point two Features of Hire Purchase

Five point three Advantages and Disadvantages of Hire Purchase

Disadvantages:

PART SIX: LEASING versus HIRE PURCHASE

Overview

This document provides in-depth study notes related to financial practices such as factoring, forfaiting, bills discounting, and leasing, aimed at helping learners grasp complex financial concepts through practical examples and structured content.

Key Points

1Factoring is a financial arrangement where a business sells its receivables to a factor for immediate cash
2Forfaiting provides exporters with cash by discounting receivables without recourse
3Bills discounting involves obtaining financing from a bank against genuine commercial bills
4Leasing allows for the exclusive use of an asset through a contractual agreement, facilitating access without ownership
5Understanding these financial concepts can enhance cash flow management and financial planning for businesses.

Details

Category: Business and Finance

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