LEASE FINANCING

It is a written agreement under which the owner gives the right to economic use of the assets to the user for a stated period of time against a consideration Essential Elements
Parties to the contract Assets Ownership separated from user Term of lease Lease rentals Lease is renewed on a perpetual basis or for a definite period, or Asset reverts to the lessor. or Asset reverts to the lessor and lessor sells it to third party or Lessor sells the asset to the lessee

Modes of terminating lease

Classification
Finance lease Type of assets ship,aircraft, railway,wagons, land,building, heavy machinery, diesel generating sets and so on.
Direct lease Bi partite lease Tri partite lease

CLASSIFICATION
Sale and lease back Leveraged lease

Operating lease

difference
Nature Role of lessor Purchase of asset Coverage period Cancellability Risk and rewards Risk of obsolescence Number of lessees Amortisation of the cost of the asset Types of assets Classification Purchase of the asset by the lessee

ADVANTAGES
To the lessor
Ownership Security Depreciation Tax relief Lease rentals Cash inflow High profitability Growth potentiality

ADVANTAGES
To the lessee
Capital outlay Convenience Short period lease Tax shield Cost of repairs, maintenance, insurance etc Off balance sheet financing Borrowing capacity Risk of obsolescence Specialised service Dilution of control Costly assets Flexibility in lease entals

DIS ADVANTAGES
To the lessor

Cost of repairs, maintenance etc Taxes Control Risk of obsolescence Sales tax
Restriction on use Technological changes Understatement of asset Higher payout obligation Residual value

To the lessee

FACTORING
Factoring can be defined as an agreement n which receivables arising out of sale of goods/services are sold by a firm (client) to the factor as a result of which the title of the goods / services represented by the said receivables passes on to the factor. Henceforth, the factor becomes responsible for all credit control

FUNCTIONS
Financing facility/ trade debts Maintenance/administration of sales ledger Collection facility/ of accounts receivable Assumption of credit risk/ credit control and credit restriction And provision of advisory services