1.0 HIRE PURCHASE 1.1. OVERVIEWStarting any business involves a lot of financial planning for acquisition of fixed assets like land, plant, vehicles, machinery and many others. Most entrepreneurs are scared of lack of capital amount due to big amount of capital needed when a person started to create business. When large capital is involved in the business, an entrepreneur wishes to spread his cost of acquisition of fixed assets over a longer period. Longer period would reduce per year commitment towards the cost of assets. The intention is to match the commitment with the revenue generated per year so that the payments are easily manageable without any cash flow mismatch.

This problems also faced by individuals who wishes wanted to buy a house or a car for their personal use. An individual may have a large commitment towards their family. They have to buy house where they need to stay, a vehicle for their transportation to go anywhere they have to go, and many other familys needs they have to consider. All of this needs a large amount of money in which most peoples cannot afford to settle them in a blink of eyes. Thus, they have to plan the best way to manage their financial in order to make their life better.

One of the best ways to help financing goods is hire purchase. The core business of Hire Purchase is to provide financing for customer to buy private vehicles, private home appliances, business equipment and office machinery. Most of banks in Malaysia provide HP financing. HP financing involved the participations between three parties which are financier, dealer and customers.

1.2. DEFINITION OF HIRE PURCHASEHP is a legal term for a contract or an agreement, where the agreement includes a letting of goods with an option to purchase and an agreement for the purchase of the goods by instalments.

1.3. ARTIES INVOLVED IN HIRE PURCHASEa) Financier/Bankb) Customersc) Dealers

1.4. TYPES OF GOODS FINANCEDa) Private carb) Private home appliancesc) Business equipmentd) Office machinery

1.5. HIRE PURCHASE TRANSACTIONa) A hirer decided to purchase an asset (e.g : Buying a car)b) The hirer needs to pay a down payment to the dealer.c) The hirer then negotiates the amount of financing with their financier. The hirer needs to pay to the dealer whatever amount not being covered under the financing. The hirer and the owner (normally the financier) signed a hire purchase agreement.d) The owner gives the letter of undertaking to the dealer in order to release the goods (car) to the hirer.e) The dealer delivers the goods to the hirer upon receiving the letter of undertaking from the owner. The hirer receives the goods, inspects it and accepts it after being satisfied with the condition of the goods.f) The owner pays the balance to the dealer.g) The hirer will need to pay the monthly instalments to the owner/financier.

1.6. HIRE PURCHASE AGREEMENTHP agreement is done in writing and must be signed by the hirer and the financier. Normally a HP agreement will have the following information, as laid down in Section 4C of the Hire Purchase Act 1967.a) Description of the goods as would be sufficient to identify the goods.b) Specify time period and when the period shall start.c) The number of instalments and the time of payment.d) The amount of instalmentse) Specify the person to whom and the place at which the payments to be made.f) The address where the goods to be located.g) Cash price for the goods.h) Hire Purchase price (The total sum that must be paid to hire and then the price to purchase the goods.)i) Deposit amount (e.g : 10% of the actual price of the car is the amount of deposit that the hirer has to pay to the car dealer) j) A reasonably comprehensive statement of the parties right (sometimes including the right to cancel the agreement during cooling-off period).k) The right of the hirer to terminate the contract when he has a valid response to do so.l) A guarantor may be needed (based on the hirer credit assessment, the bank may require a guarantor as an additional security to support the hirers application. When the hirer is unable to pay the monthly payment, the guarantor will responsible to make the payment including the interest).m) Insurance coverage throughout the duration of the hire purchase agreement.

1.6.1 The following obligations have to be fulfilled by the hirera) The hirer has to pay the hire instalments.b) The hirer has to pay the overdue instalments (A penalty is imposed on overdue instalments when its interest charged on a daily basis. For fixed rate financing, the maximum charged allowed is 8% while for variable rate financing, it is 2% above the prevailing term charges for variable rate).c) To take reasonable care of the goods.d) To inform the owner where the goods will be kept.e) A hirer can sell the products if and only if he has purchased the goods.

1.6.2 The owner also has the right to terminate the agreement when the hirer breaches any terms the agreement of contract. Thus, the owner has the right:a) To forfeit the deposit.b) To retain the instalments already paid and recover the balance due.c) To repossess the goods (which may have to be by application to a Court depending on the nature of the goods and the percentage of the total instalments that have been paid by the hirer).d) To claim damages for any loss suffered.

1.7 COMPUTATIONS OF HIRE PURCHASEInterest amount or also known as term charges (Total amount of interest needs to be paid for the loan).Example: Encik Ali borrowed RM1k to purchase a second hand car. Bank A provided a loan. Encik Ali must repay the loan by monthly over one year. The interest is 14% per annum.

= RM1000 X 0.14 X 1 = RM140 per annumi. Monthly rental payment /instalmentThis refers to how much the amount of payment of the loan the hirer has to pay per month (including interest). = (RM1000 + RM140) / 12 months= RM95In this case, Encik Ali has to pay RM95 to bank A as the monthly payment for his loan for a 12 months (a year).ii. Statutory Rebate (SR)Statutory rebate is the term used when you pay off a credit agreement before it is due to end. It entitles you to a proportionate rebate on the interest payable on the agreement. The law provides that borrowers can settle most agreements early, provided certain conditions are met. It is impossible for the hirer of a hire purchase loan to check the amount of statutory rebate he is entitled to because the calculation formula is not mentioned in the hire purchase agreement. Also, the description of the formula in the Hire Purchase Act 1967 is almost incomprehensible to the common man.The hirer is entitled to a statutory rebate for terms charges and unexpired insurance. The statutory rebate for terms charges is calculated using a formula derived from section 2(1) of the Act. Simplified, the formula is as below:IX(N) (N+1)

(T) (T+1)

Where:I = amount of interest chargedN = number of instalments still to goT = total number of instalments in the agreementLet say, Encik Abu bought a car.Car purchase price : RM100,000Deposit : RM10,000Loan Amount : RM90,000Interest :14% (flat rate)Time period for payment of the loan : 5 years / 60 monthsEncik Ali has to pay a total of 60 instalments in a hire purchase agreement and he is charged an interest amount of RM45,000 (total interest for 60 months) for the whole period. She has already paid for 12 months before she decided to complete the purchaseearly statements. Thus, statutory rebate for term charges he is entitled is:RM45,000 x (48) (48+1)/(60) (60+1) = RM28,918.1

iii. Annual Percentage Rate (APR)Basically, APR gives an idea of total hire purchase cost of the borrowing. APR, is the interest rate charged on the amount borrowed. It reflects the annual cost of borrowing money. APR makes it easier to compare different loans and credit cards, because you can easily see which loan/credit card would be cheaper.

For example, a loan with a 10%interest rateis less expensive than a loan with a 15% interest rate. APR should be stated in HP agreement. The formula for APR is (refer to the seventh schedule of HP act)Where: N = number of instalmentsC = number of instalments that are under the contract which will be paid in one year or, where the contract to be completed in less than one year, the number of instalments that would be paid in a year if instalments continued to be paid at the same interval.F = the amount determined in accordance with the formula:T = Total amount of predetermined term chargesA = amount financedFor example, take a look at Encik Ali case.F= (100(12) x 140) / 12 x 1000 = 14Thus, the annual percentage rate is:APR = = 336(3768)/(4032+46800) = 1,266,048/50,832 = 24.9065%1.8 ISLAMIC CONCEPTa) Al-Ijarah Thumma Al-baiUnder the Al-Ijarah contract, the hirer (customer) hires the goods from the owner (the bank) at an agreed rental over a specified period. Within the hiring period, the hirer signs the leasing contract for the goods from the owner at an agreed price. During the period of the agreement, the bank owns the vehicle.

Upon settlement of the hire rentals, the Sales Contract will be executed, thus transferring the ownership of the vehicle from the bank to the hirer.

However, in the event of the customer failing to perform his obligation to service the hire rental or performs otherwise from the terms and conditions stated in the agreement, the bank has the right to exercise reasonable actions to mitigate its losses.

1.9 ADVANTAGES AND DISADVANTAGES OF HIRE PURCHASEa) Advantages i. Convenience in paymentThe buyer is greatly benefited as he has to make the payment in instalments. This system is greatly advantageous to the people having limited income.ii. Increased Volume Of SalesThis system attracts more customers as the payment is to be made in easy instalments. This leads to increased volume of sales.iii. Increased ProfitsLarge volume of sales ensures increased profits to the seller.iv. Encourages SavingsIt encourages thrift among the buyers who are forced to save some portion of their income for the payment of the instalments. This inculcates the habit to save among the people.

v. Helpful For Small TradersThis system is a blessing for the small manufacturers and traders. They can purchase machinery and other equipment on instalment basis and in turn sell to the buyer charging full price. vi. Earning Of InterestThe seller gets the instalment which includes original price and interest. The interest is calculated in advance and added in total instalments to be paid by the buyer. vii. Lesser RiskFrom the point of view of seller this system is greatly beneficial as he knows that if the buyer fails to pay one instalment, he can get the article back.b) Disadvantagesi. Higher PriceA buyer has to pay higher price for the article purchased which includes cost plus interest. The rate of interest is quite high. ii. Artificial DemandHire purchase system creates artificial demand for the product. The buyer is tempted to purchase the products, even if he does not need or afford to buy the product.iii. Heavy RiskThe seller runs a heavy risk under such system, though he has the right to take back the articles from the defaulting customers. The second hand goods fetch little price.iv. Difficulties in Recovery of InstalmentsIt has been observed that the sellers do not get the instalments from the purchasers on time. They may choose wrong buyers which may put them in trouble. They have to waste time and incur extra expenditure for the recovery of the instalments. This sometimes led to serious conflicts between the buyers and the sellers.

v. Break Up Of FamiliesThe system puts a great financial burden on the families which cannot afford to buy costly and luxurious items. Recent studies in western countries have revealed that thousands of happy homes and families have been broken by hire purchase buyings.

2.0. BLOCK DISCOUNTING2.1. DEFINITIONIt is a form of funding used by companies who provide a leasing or rental type of finance agreement to customers over a credit period of upto 5 years. The goods are usually motor vehicles or items of capital equipment or products manufactured and distributed with a resale value, by companies offering a sales aid package that helps to sell their products.Services are normally excluded in this type of funding due to the contingency risk of non-performance over a period of time.The company offering finance builds up a portfolio of credit agreements which provides the security to raise a loan by using a specific number of agreements or Blocks of agreements. The agreements are discounted against their full value to protect both parties against default or early settlement by the customer.The monthly or quarterly repayments from the customers effectively provides the loan instalments to the lender, repaid over a shorter time than stated on the original agreements.

Block Discounting is where Individual X, dealing business by way of hire-purchase agreements or credit-sale agreements, contracts with Finance House Y to sell his interest in those hire-purchase and credit sale agreements at a discount.

2.2. Block Discounting That Offered By Maybank

A credit facility for motor dealers, credit and leasing companies to augment their working capital by discounting blocks of hire purchase and leasing agreement receivables for present cash.

Block Discounting is a credit facility for reputable motor dealers, credit and leasing companies to augment their working capital. It entails the discounting of blocks of HP and leasing agreements receivables for present cash. The blocks of Hire Purchase and leasing Agreements assigned to us are covered under a Master Agreement for Block Discounting.

2.3. Benefits of block discountinga) Improve funding by refinancing your Hire Purchase debt receivablesb) Better planning of cash flow as the instalment amount and number of instalments are predetermined.c) Attractive and competitive interest rates according to type of goods financed.d) Flexible drawdown and utilisation up to approved limit.e) No commitment or renewal fees on unutilised portion from approved limit.f) Easy payment options at over 400 Maybank branches nationwide, or online via Maybank2u.com

2.4. Types of good financea) Motor vehiclesb) Motorcyclesc) Consumer durablesd) Leased equipmente) Machinery

2.5. Who can applya) Private and Public Limited Companiesb) Companies involved in credit granting business for several years

2.6. Broad Financing Terms

a) Eligibility:Private and Public Limited CompaniesAlready in credit granting business for several years

b) Interest Rate:Attractive and competitive interest rates that is according to types of goods financed

c) Margin of Finance:Maximum of 90%

d) Tenure:Up to 5 years

e) Other Benefits:No commitment fees or renewal fees

2.7. Required documentsPlease bring along the following when applying for financing:I. M&A of your companyII. Certified true copy of Certificate of Incorporation (Form 9)III. Certified true copy of Form 24 (from date of incorporation) & latest Form 49IV. Company's profileV. Latest 3 years' audited accounts / financial statementVI. Latest 6 months' bank statementsVII. Latest 6 months' sales and disbursement / amount financedVIII. Latest 6 months' collection

3.0. LEASING3.1. DEFINATIONLeasing is a written or implied contract by which an owner (the lessor) of a specific asset (such as a parcel of land, building, equipment, or machinery) grants a second party (the lessee) the right to its exclusive possession and use for a specific period and under specified conditions, in return for specified periodic rental or lease payments. In simple word, the transaction of lease is generically an asset-renting transaction or on other words the financier buys the asset and rents it out and makes series of payment to the lessor for the use of asset.

3.2. TYPE OF LEASINGa) CAPITAL/FINANCIAL LEASEFinancial or capital is a non-cancellable contractual agreement made between a lessor and a lessee. Financial lease allow the asset to be virtually exhausted by the same lessee. Which means that, lessee fully utilizes the asset until the end of assets life span. The lessor also takes no asset-based risks or asset-based rewards. He only takes financial risk and financial rewards and that why the name is financial lease. The lessor need not be liable when the equipment breaks down unless the equipment supplied was defective

Financial lease also known as full pay out lease, means the full repayment of the lessors investment is assured. Generally, lessor would not take any position other than that of a financier, he/she would not provide any services relating to the asset. The risks that lessor takes is not an asset-based risks but a lessee-based risks. Example of a financier lease is big industrial equipment.

b) OPERATION LEASEOperating lease is a cancellable contractual agreement made between a lessor and a lessee, which means can usually be cancelled under conditions spelled out in the agreement. Basically computer equipment, automobile, trucks, and office copiers is often leased under operating lease.

Under Operating lease, the lessor does not wholly recover the cost of equipment out of the rental receivable under lease during non-cancellable period. To recover the investment cost and make a profit, the lessor depends on continuing demand for the rental of the assets. The lessee normally pays all lease rental upfront and in advance for very short lease period such as renting a car for 7 days. For longer lease periods, such as for 6 month lease period for a tower crane. The lessee assures the lessor that the asset will be returned in a lease-able condition. If the asset is damaged, then the lessee is responsible for bearing the cost of repairs.

For operating lease, normally it is associated to non-full pay out leasing, the lessor does not recoup the initial capital investment of the equipment during the primary period. The period of lease is always less than the useful working life of the equipment. Part of the lessor investment and income is derived from the residual value of the equipment leased.

c) OTHER TYPE OF LEASEi. Direct Leaseii. Leveraged Leaseiii. First Amendment Leaseiv. Sale and Leaseback

3.3. PARTIES INVOLVE IN LEASINGa) Lessor - Person who owns the asset and give on lease.b) Lessee Person who takes the asset on lease and uses it for the period of lease.c) Supplier Supplier is a third party who provides equipment needed for acquiring the asset for a lease.

3.4. EQUIPMENT CAN BE LEASEDVirtually any moveable asset can be leased.a) Computers and IT relatedFile ServersHardwareMacro computersMainframesb) Office equipmentEmbossers/FoldersFacsimile EquipmentFile CabinetsFurnitureLabelling Machinesc) Agricultural, Forestry, Fishing equipmentHarvesting and PlantingHay and Cotton BailersTractorsDairy MachineryFood ProcessingLivestock Equipmentd) Telecommunication equipmentMultiplexersSwitchesTelephone systemsTransformers e) Construction and heavy equipmentBulldozersCement trucksCompactorsConcrete equipmentCranes

f) Material handling equipmentForkliftsPallet JacksPlatform LiftsConveyersg) Medical equipmentBlood AnalysersCT ScannersExam TablesDental EquipmentHeart MonitorsLab Testing EquipmentOptical Equipmenth) Industrial and ManufacturingGrindersLathes

3.5. STEP OF LEASING PROCESSStep 1 Define Your RequirementBusiness owner (lessee) decide on the equipment you would like to purchases and negotiates cost with the Bank (lessor). Step 2 Complete Your Application FormSubmit an equipment lease application by fax, e-mail, online, mail or deliver it in-person.

Step 3 We Process Your ApplicationWe immediately get started on processing lessee application. When the lease is approved, Accord Leasing will notify the business owner (lessee) and the equipment dealer (supplier) of the terms and conditions of the approval. The average decision time for application only is one business day, 24 hours after receipt of all the requested financial information. The equipment dealer (supplier) will provide Accord Leasing with an invoice or quote providing make model and serial number if available.

After we (lessor) receive this information, we will generate the lease documents and overnight or email them to the business owner or supplier if desired. When Accord Leasing receives back lease documents we carefully review for proper signatures and receipt of advance payment from business checking account. We then issue a purchase order to the equipment dealer or provide pre-funding if required.

Step 4 Leasing BeginAfter the equipment is delivered and installed the business owner (lessee) will be contacted by phone and asked to verbally verify the delivery and acceptance of the equipment. We verbally review the lease terms, and authorize payment to the equipment dealer. Payment to vendor is then made by overnight courier or bank wire.

3.6. BENEFIT LEASINGi. 100% FINANCINGMany business leases come with 100 percent financing terms, which means no money changes hands at the inception of the lease. Well, its not totally cash-free, because the lessee has to make the lease payments each month. But many times the assumption is that the company will be making the payments from future cash flows. In other words, from enhanced revenues that the company earns because of the lease.

ii. FIXED PAYMENTLeasing provide fixed periodic payments equipment acquisitions. Payment are usually made on a monthly basis but can be structured as quarterly, semi-annual or annual. A fixed payment amount enhances your ability to forecast cash flow requirements.

iii. CASH FLOWLeases are attractive to many asset buyers because they can get more asset such as car for a lower monthly payment. How is that possible? Lessees only pay for the depreciation on the car, not the entire vehicle. In effect, they're renting the car for the length of the lease.

Leasing can reduce your initial cash outlay. This allows for a more intelligent use of cash rather than putting it toward the questionable investment of car ownership since cars are depreciation asset.

There are other financial advantages in leasing. If you use your car for your job, leasing payments can be written off as a business expense on your tax returns. Additionally, lease obligations don't show up as debt on a credit report, which may be important to companies that buy multiple cars for business use.

iv. LOWER PAYMENTSThe biggest advantage of leasing equipment is that the cost is spread over a number of years, there is no need for you to pay the entire amount upfront. This can significantly help maintain cash flow, which is critical to all businesses. Poor cash flow is the main cause of small business failures, and leasing can help you to keep it under better control.Leasing can also allow you to use better equipment (e.g. A more efficient / faster / more accurate product) that would be too expensive to buy outright.

v. BALANCE SHEET CONSIDERATIONSFinally, operating leases provide off-the-books (or balance sheet) financing. In other words, the companys obligation to pay the lease, which is a liability, doesnt reflect on the balance sheet. This can affect a financial statement users evaluation of how solvent the company is because he will be unaware of the debt, hence the importance of footnotes to financial statements.

3.7. DISADVANTAGES LEASINGi. NO OWNERSHIPThe main disadvantage of leasing is that you never own the product. It remains the property of the leasing company during and after the lease. The only exception being if you arrange for it to be sold to another company or person, in which case the leasing company would receive the money and a percentage would be passed back to you (depending on the amount, product type, age, and which leasing company you use).

As you do not own the product, you are unable to sell it in the event it is no longer needed, and you cannot upgrade to a newer or better product without either paying off the remaining contract, or paying a large fee to cancel the contract. You also need to carry on paying a smaller lease cost, even after the cost of the equipment has been fully covered.ii. LONG TERM EXPENSESAlthough leasing allows you to avoid paying a large lump sum, over a long period of time it often works out considerably more expensive. Over the course of a standard lease, you pay the cost of the equipment as well as the leasing companies charges.

After the lease finishes you need to carry on paying rental to use the product (although after the initial lease the cost of rental goes down significantly). This means that over a number of years, you will pay considerably more than the actual cost of the equipment without ever actually owning it.

iii. COST OF MAINTENANCEAlthough you do not own the equipment that you lease, you are still responsible for its maintenance and repair. Unless you have specifically trained employees to fix the equipment, then this could prove very costly in the event of a serious fault.

Some leasing companies will allow you to cover the maintenance and repair costs for an extra sum (which is added to the monthly leasing cost). This will increase your monthly payments, but may save you money in the long run; particularly with manual or highly technical products that may go wrong frequently, and may cause severe disruption if out of action. Cover is normally through the leasing company itself, or through a separate insurance policy.

iv. COMMITMENT TO PROPERTYOnce you sign a lease agreement, you're generally committed to making payments for the entire lease period even if you stop using the property. Most equipment leases are either non-cancellable or impose a stiff penalty for early termination.

3.8. CONCLUSIONIn conclusion, leasing only tangible asset can be leased out. Transaction in which a party owning an asset provides the assets for use over a certain period of time to another party.

4.0 FACTORING4.1. DEFINITION OF FACTORINGFactoring is selling accounts receivables or debtors accounts (in terms of invoices) to a factor (factoring company) in order to finance continued business. Factoring is sale of receivables invoices at a discount, but at the same time it is a borrowing where the receivable is used as collateral. Factoring differs from a loan because it involves selling of accounts receivable and a factoring transaction it will involves three parties (factor, factors customer/seller of accounts receivable and sellers client or the accounts receivable).

Figure 4.0.1 Example process and parties involved in factoring

4.2. CHARACTERISTICS OF FACTORINGThe outright purchase of the account receivable by the factor (bank), once invoices have been factored, the value of the receivables are transferred as cash. Unlike in bank loans, cash does increase but your liabilities go up as well.

Risk of non-payment is assumed by the factor. The period often lasts from ninety (90) to one hundred and fifty (150) days and in other instances more than that depending on the factoring firm. Customers buyers are notified of the factoring arrangement and are told to make payment direct to the factor. Business factoring leverages not on financial standing but on customers. The reason for such is because the factor will not collect from company but on your customers. The burden of payment lies in them so you are freed of any liability whatsoever.

1.0 2.0 3.0 4.0 4.3. FACTORING PROCESS1. The factors customer or the one who sells the accounts receivable or debtor at a discount. 2. The accounts receivable or debtor is a financial asset or current asset associated with the debtors liability to pay money owed to the seller. The seller of the accounts receivable or debtor will surrender the seller. The seller of the accounts receivable or debtor will surrender the receivable invoices to the factor. 3. The factor in return will give an amount of money to the seller. The sale of the accounts receivable or debtor will result in transfer of ownership of the accounts receivable or debtor to the factor, indicating the factor obtains all rights and risks associated with the accounts receivable. Accordingly, the factor obtains the right to receive the payments made by the accounts receivable or debtor for the invoice amount and must bear the loss if the accounts receivable or debtor does not pay the invoice amount.

4.4. TYPE OF FACTORINGi) Standard factoring Standard factoring means buyers are notified to pay directly to the factor. The factor makes cash advances to the client within 24 hours of receiving the documents. Factors then wait to collect payment from the customer, deducting a fee and interest payment before returning the balance of the collected amount to the business that issued and sold the invoice.1. Maturity factoringThe factor provides the customer with a credit guarantee for his buyers. The factor may agree to pay an amount to the client for the bills purchased by him either immediately or on maturity. The later refers to a date agreed upon on which the factor pays the client.

2. Maturing with assignment of equityThe factor will provide the bank with a guarantee for making the advance to the customer. In bank participation factoring the bank takes a floating charge on the clients equity example, the amount payable by the factor to the client in .respect of his receivables. On this basis, the bank lends to the client and enables him to have double financing.3. Important factoringThe factor provides account receivable book keeping and collection services. For the important of good on the basis trust receipt. For businesses, factoring provides a solution to managing cash flow. Cash flow is that rate at which money flows into and out of the firm. Waiting months for a customer to make payment reduces cash flow.

4.4. FACTORING TRANSACTIONFactoring transaction includes the amount of:a) The advance, a percentage of the invoice face value that is paid to the seller upon submission (which is around 80% of the invoice value)b) The reserve, the remainder of the total invoice amount held until the payment by the account debtor is made,c) The interest, to be chargers on the amount of advance given to the sellers. The interest is based on how long the factor must wait to receive payments from the debtor.

4.5. ADVANTAGES AND DISADVANTAGE OF FACTORINGAdvantages:a) Financing the suppliersThe factoring company pays the client the amount necessary for her working capital, in exchange for her invoices.b) Maintenance of the receivables accountThe factoring company manages the trade debts of the client, keeping the sales accounts ledgers and sending out the invoices.c) Collection of receivablesThe factoring company collects the payments due from the account receivables or debtor of the customer.d) Protection against the default in payment by accounts receivable or debtorThe factoring company carries the risk of any bad debt (if account receivable or debtor fails to pay).Disadvantagesa) More expensive than a bank loanAccounts receivables factoring is more expensive than a bank financing because of the transactional work with the invoice the factoring company does advance more money quickly. Costa very significantly between factors and comparing rates and fees can be challenging. Invoice factoring cost drives need to be careful.

b) Shrinks as business contractsFactoring can grow rapidly with you but also contrast as quickly if business is contrasting. Then, factoring may not be a good solution for business with the great seasonality or other significant downward fluctuations in revenue.c) NotificationsFactoring companies typically require that you assign the accounts receivable to them. This means that your customers accounts payables departments will be notified to send payments to the factoring company lockbox. Some business are concerned this will affect their customer relationship but factoring is such commonly use form of financing that are professionally delivered factoring service rarely draws much notice from customers. It is important to thoroughly understand the terms of factoring agreements to know if costs or delay in payments may result from the notification process.

4.6. EXAMPLE CALCULATION ON FACTORINGi. Value of invoice rm100,000ii. Credit period- net60iii. Factors reserve- 10%iv. Factoring fee- 1%v. Interest rate- 1%Amount of invoiceRM100, 000

Less: factoring fee =0.1xrm100, 000RM1, 000

Less: factors reserve= 10%xrm100, 000RM10, 000

Amount of advanceRM89, 000

Less: interest on advance= 1%x2monthxrm89, 000RM1, 780

Maximum advanceRM87, 220

RM1, 000 + RM1, 780 = RM2, 780

4.7. CONCLUSION OF FACTORINGFactoring is a short-term solution, at least for two years or less. Factors help clients do the transaction to traditional financing, careful selection of factoring company is essential to ensure account Receivables is professionally delivered and well price. Factoring is easy way for turning invoices to cash, also ability to borrow from other sources may be reduced.

Factoring can be a somewhat complex and cumbersome process. One way to look factoring is that a business is outsourcing its receivables collection process. In factoring more considerable, money and time must be invest. Factoring may be particularly useful in countries with weak contract enforcement, inefficient bankruptcy systems, and imperfect records up holding seniority claims, because receivables factored without resources are not part of the estate.

5.0. BRIDGING LOAN AND END FINANCING5.1. DEFINITIONA bridging loan is a type of loan that enables you to buy a property prior to another property been sold. Bridging loans do precisely what it says on the tin, bridging loans function as a bridge in between two monetary transactions. You are selling your house and purchasing another house. The vendor is prepared to finish the sale, however your purchaser has pulled out of the acquisition, or isn't ready. Your vendor has said to you that he is going to accept another persons offer unless you have the ability to finish by a specified day. You cannot manage to do this without the profits from selling your current house.

The amount that is obtained with a bridging loan is deemed a short-term loan till your already existing residential property is lastly sold, the loan provider expects the bridging loan to be paid back with the sale profits, and anticipates this to be in 6 months to 12 months. Throughout this time period you might not need to make any sort of payment towards the loan, as lending institutions typically are happy to include all the interest that you build up throughout this time period to the amount which you have actually borrowed, you then pay back the interest and the initial balance in a single payment when your residential property has been sold.

In general definition from loan developer in other country such as United Kingdom (UK), bridging loans are a short-term funding option. They are used to bridge a gap between a debts coming and overall explain on property transactions. It can simply act as a short-term loan in pressing circumstances. Besides, bridging loans are designed to help people complete the purchase of a property before selling their existing home by offering them short-term access to money at a high-rate of interest.

The person who makes the loan, they will face up the cost interest which is up to 1.5% a month, meaning 18% a year. Bridging loan is a Short-term, usually one (1) to three (3) months. It is generally used to complete a purchase, such as to buy a new house before the borrowers receives payment from a sale of the old house. It is also called bridge finance, bridging loan, or gap financing.

It is actually according to the bank or the loan provider which services that their company provide under bridging loan. It means some of the bank or loan provider only gives this loan only for building and construction but some of development the bridging loan includes housing, building and construction of commercial and industrial building or project.

In Banking Operation syllabus, bridging loan defined as a short-term loan given to a housing developer in order to bridge the gap between immediate cash required from housing developer because that person what to start the housing project and anticipated cash to be received in the future which means that the funds to be received from house buyers. Usually, a developer needs funds for housing or property development.

The bank will assess the financial standing and capacity of the developer before granting such loan. The bank officer needs to conduct a comprehensive study on the feasibility and viability of the housing project.

The loan is normally disbursed periodically according to the stages of housing development. This type of loan is normally given by a bank to the same housing developer and at the same time the bank will provide a long-term loan to the individual house buyer. The proceeds received from the buyer will be used to settle the loan.

5.2. PARTIES INVOLVEDIn order to make this bridging loan, it has a several parties that involved in this procedure. Generally speaking, bridging loans are aimed at landlords and amateur property developers, including those purchasing at auction where a mortgage is needed quickly.

In basically, the parties involved are first, it is involve the bank or loan provider. The bank or loan provider is responsible to check the status of the borrowers before the loan will be approved. In this situation, the bank will assess the financial standing and capacity of the developer before granting such loan. The bank also will check the company status, financial flow of the company, background of the company and other else. So then, the bank officer will conduct a comprehensive study on the feasibility and viability of the company project. It is for make sure the objective of the borrower is fulfil the requirement to make this loan.

A second party is the borrowers or housing developer or the seller of the house. These parties are responsible to prepare a complete document to apply the loan. The borrowers need to follow the requirement that needed from the bank or loan provider in order to make sure the flow to granting the loan is clear and clean. If the loan are made in order for housing project, so the housing developer need to make sure the project is run smoothly according to the project plan. So that the housing developer can gain the sales from the house buyer to pay back the loan to the bank or loan provider. The borrowers also responsible to pay back the sum amount of loan include the interest that had been agreed between the borrowers and the bank or loan provider.

The last parties are the buyer of the property. These parties are responsible to pay sum of money to the second parties according to the agreement made of between the borrowers and the buyers.

5.3. TYPES OF BRIDGING LOANOpen bridging loans and closed bridging loans are the two kinds of bridging loans that are available.

With a closed bridging loan there is a fixed repayment date, you will typically be provided this type of financing if you have already exchanged contracts however are waiting for a property sale to finish.

With an open bridging loan there is no fixed repayment date, but you generally will be expected to pay the loan off within 1 year. Whichever type of bridging loan you decide to get, the loan provider will certainly wish to see proof of a strategy of payment, like getting a mortgage or using equity from an asset sale. Also they will wish to see proof of the brand-new asset that you are buying and how much which you prepare to pay for it, and also evidence of exactly what you are undertaking to be able to sell your present property if relevant. Also you need to have come up with a backup strategy in case your strategy for payment fails, for instance, if sale falls through for any reason.

5.4. RATES OF A BRIDGING LOANWhen taking into consideration a bridging loan, the vital element to consider is if a bridging loan is a feasible choice and this usually would be determined from the rates of the bridging loan. Rates of a bridging loan are the rate of interest which would be paid on the loan, that all depends upon the kind of bridging loan, closed loan or open loan. In the majority of circumstances a closed bridged loan already will have the borrowers current asset on the marketplace and all set for the exchange; this could be considered as a lesser danger for loan providers.

In an open bridged loan the existing asset might not have started specific preparations for it to be advertised in the marketplace just yet, however the purchaser might be showing interest in an asset, so for that reason the bridge is open. From a loan providers point this could be viewed as a greater risk as there is a possibility the sale could possibly fall through. The bridging loan rates would certainly be affected from the BOE Base Rate, and are base plus 1 percent each month, and a regular term is between 30 days to 12 months with an option of expansion. Below are regular bridging loan rates:

1.25% month to month interest rate. An average of 70% Loan to Value. No exit fee. No minimum return. A set-up charge of roughly two percent.

5.5. USEFUL OF BRIDGING LOANSituations where a Bridging Loans can be useful and there is no constraint on what a bridging loan can be utilized for to the borrowers.a) Second home, acquisition of a vacation residence either in the U.K or overseas. b) Personal. There are lots of various other reasons for applying a bridging loan for example repairing your credit score, weddings, holidays etc. c) Buy to Let, unlock financing to allow you to increase your property portfolio. d) Business, your company could need an injection of temporary money or upgrading of business properties.e) Extensions to your residence. f) Tax, you might have outstanding tax repayments to make quickly. g) Car, you could want to make use of your houses equity for a car purchase.

5.6. PROS AND CONS OF BRIDGING LOANOne of the popular short-term financing methods according to experts and business people are what we call bridging loans. These serve as gap fillers that link the asking price to a pending mortgage in the case of real estate asset acquisitions such as homes, offices, land and buildings. It also bridges the purchase of the property while its sale is still in the works.

Bridging loans can be used on almost any kind of property may it be residential, industrial or commercial. It is also available for both individuals and business owners. There are essentially two types to it depending on the arrangement as follows:

a) OPEN BRIDGED LOAN is one where there is no fixed term. Here there is no definite period where the availability of the bigger mortgage or the sale of the asset is supposed to be accomplished.

b) CLOSED BRIDGED LOAN is the opposite where a predetermined date or period is set.

BENEFITS OF BRIDGING LOANThere are several benefits that you (borrowers) can get.a) You are able to purchase a new property without having to sell your existing property first.

b) If you are building a new property you may remain in your existing home until completion.

c) A bridging loan term of six months means less pressure to sell quickly.

d) Standard Variable Rate of interest applies instead of paying an inflated bridging rate, which means interest savings for you.

e) Flexible repayment plan to suit your individual needs.

5.7. PROCESS IN HOW TO APPLY BRIDGING LOANIt has several ways in how to apply this loan. It also has a several requirements that you as a borrower need to follow if the borrower wants their application approve by the bank or loan provider. The most important is, the requirements for the loan are followed by the rules that each bank or loan provider had stated.

One of example is Maybank Malaysia.

The second example is the form for applying bridging loan at

This is the example of form that Alliance Bank provides. It is the one of the bank are use the online form

5.8. Conclusion Bridging loans are becoming increasingly recognized as useful and valuable by individuals and businesses looking for quick, short term funding solutions. Fast and flexible, it provides people with the finances that they need in order to remedy a cash flow issue or take advantage of an opportunity, which they otherwise may have not been able to secure.

For anyone looking into obtaining a bridging loan, it is important to take the time to find a reputable lender with the following accreditations: a) A Member of the Council of Mortgage Lenders b) Authorized and regulated by the Financial Conduct Authority c) Proven track record d) Experienced in working on projects similar to yours

By choosing an experienced, trustworthy bridging loan provider like the example stated, you can make sure that the funds that you need will be provided in the timescale required and in a professional manner.

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