Fin 435: Banking Products
and Services
Leasing
And
Factoring…
Name: Puteri Nina Farhana
Binti Mior Zoraini
No Matric: 2020983179
Lecturer name: Rohaiza Kamis
Overview of leasing
It is a contract outlining the terms under which one party agrees to
Lease rent property owned by another party.
It guarantees the lessee, also known as the tenant, use of an asset
and guarantees the lessor, the property owner or landlord, regular
payments for a specified period in exchange.
Both the lessee and the lessor face consequences if they fail to
uphold the terms of the contract. It is a form of incorporeal right.
Breaking a
A tenant who breaks a lease without prior negotiation with the
lease landlord faces a civil lawsuit, a derogatory mark on their credit
report, or both.
As a result of breaking a lease, a tenant may encounter problems
renting a new residence, as well as other issues associated with
having negative entries on a credit report.
Tenants who need to break their leases must often negotiate with
their landlords or seek legal counsel.
Overview of factoring
It is arrangement between 3 parties, which is the bank, the
company and a third party (debtor).
It is a type of financing facility whereby bank, as the factoring
company, purchases approved sales invoices of a company. Factoring
The money from the sales of the invoices indirectly becomes the
financing amount from the bank.
The bank will later collect the factored trade debts from debtors of
the company.
Bank /
Factoring
Bank purchases invoice and Company
pays to the customer ($$)
Company present invoice
Bank/Factoring Debtor pays to the bank
Company
Company Debtor
Characteristics of leasing
The parties Equipment
to contract are bought
The lease
are lessor by lessor at
The lease the request
contract
finance is and lessee specifies
of lessee
a contract the period
The lessor is the of contract
owner of the assets
and is entitled to
the benefit of
depreciation and
other allied benefits
e.g., under sections
32A and 32B of the
Income-tax Act
The lessee
The lessee, in
claims the consideration
The lessee
rentals as pays the lease
uses these
expenses rentals to the
equipment’s
chargeable to lessor
his income
Characteristics of factoring
Opened to any Companies
private limited requiring the
companies, facility must have
partnership & sole- credibility.
proprietorships that
have approved sales (a proven
invoices. (selling business track
goods on credit) record)
Companies must The credit terms of the
meet a certain sales must meet the
acceptable period set by bank
reasonable amount which may various
of invoice and a from one bank to
certain annual another. (credit terms
turnover set by the between 60-150 days,
or up to 180 days)
bank.
Advantages & Disadvantages
of leasing
1. There is a minimum up-front
capital requirement or no 1. The lease has a non-
capital outlay at all. It can be cancellable feature.
100% financing otherwise
known as pure lease. 2. The lessee has to be fully
2. Leasing allows replacement committed to the payment
of the equipment at the end of rentals until the end of the
the lease period if it is worn out. lease.
3. Leasing is a fully tax 3. The lessee may have to
deductible expense & do not forgo the incentives given to
have any impact on the a purchaser such as special
credibility. ownership allowance,
4. Leasing remove the investment tax credit /
possibility of owning obsolete pioneer status.
equipment.
Advantages & Disadvantages
of factoring
1. For a fee, factoring
companies can unlock funds 1. It is very costly, as a huge
tied up in unpaid invoices so discount is to be paid to the
that your business receives factor.
funds without waiting for 2. Many factoring facilities
customers to pay. are unsuitable for
2. Most factoring providers businesses which deal
will manage credit control, mostly with one or two main
too, meaning that the customers. This is due to
business no longer needs to factoring companies
chase customers for invoice stipulating low
payment which can save a ‘concentration limits’
lot of time.
The comparison of the leasing offered by any financial
institutions in Malaysia
• Type of facilities: • Eligibility:
Operating Lease & Sole proprietorships
Finance Lease Partnerships
Private Limited & Public Limited
• Eligibility: Companies
Private limited companies
Public listed companies • Benefits:
Non-cancellable facility, providing
• Benefits: certainty in cashflow forecasting
One year utilization as the amount and number of
period with zero instalments is known,
commitment fees, Minimal administrative and
Minimal administrative documentation costs
and documentation costs
The comparison of the factoring offered by any financial
institutions in Malaysia
• Eligibility: •Eligibility:
Approved Private Limited Private and Public Limited
and Public Listed Companies
Companies Companies involved in
Supplies / contractors to credit granting business for
government bodies / several years
agencies
Government-linked •Benefits:
companies (GLCs) Better planning of
cashflow as the instalment
• Benefits: amount and number of
Able to accelerate and instalments are
providing certainty in predetermined,
cashflow,
•Attractive and competitive
On a revolving basis with
interest rates according to
zero commitment fees
type of goods financed
Conclusion
For a conclusion, there are many financial institutions that provide
leasing and factoring services in Malaysia. From what I have learn
in this chapter, leasing is a source by which companies can get
more use of their assets. Simply by consuming not more they can
use that money in other purposes to increase the quality of their
products. Also, Factoring helps smooth running of business by
getting short term credits from financial institutions against
accounts receivables. Forfaiting is a variation of factoring with focus
on international exports.
References
Jackson. S, (2018, December 16), Lease Financing: Types,
Features, Advantages and Disadvantages. Retrieved from,
https://www.howtofinance.online/lease-financing/
Phew, (2013, September 6), Characteristics and types of
leases, formalities, and registration. Retrieved from,
http://phewconveyancing.co.uk/articles/characteristics-and-ty
pes-of-leases-formalities-and-registration
Shirshikov. D, (2020, March 30), How Invoice Factoring Works,
Retrieved from,
https://fitsmallbusiness.com/how-invoice-factoring-works/
Abdul Rahman, I. 2020, Financial Market and Banking
Operations
