Report B.O

1.
0 HIRE PURCHASE
1.1. OVERVIEW
Starting 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 PURCHASE
HP 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 PURCHASE

a) Financier/Bank
b) Customers
c) Dealers
1.4. TYPES OF GOODS FINANCED
a) Private car
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SPECIALISED FINANCIAL SERVICES
b) Private home appliances

c) Business equipment
d) Office machinery
1.5. HIRE PURCHASE TRANSACTION
a) 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 AGREEMENT

HP 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 instalments
e) 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.)
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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 hirer

a) 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.
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1.7 COMPUTATIONS OF HIRE PURCHASE

Interest 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.
Interest amount= Amount borrowed Interest Rate Time
= RM1000 X 0.14 X 1
= RM140 per annum
i.
Monthly rental payment /instalment

This refers to how much the amount of payment of the loan the hirer has to
pay per month (including interest).
( Amount borrowed + Interest )
Monthly Installment=
12months
= (RM1000 + RM140) / 12 months
= RM95
In 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)

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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:
(N) (N+1)
I X
(T) (T+1)
Where:
I = amount of interest charged
N = number of instalments still to go
T = total number of instalments in the agreement
Let say, Encik Abu bought a car.
Car purchase price : RM100,000
Deposit
: RM10,000
Loan Amount
: RM90,000
Interest
:14% (flat rate)
Time period for payment of the loan : 5 years / 60 months

Encik 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
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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 rate is 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)
APR =
2 NF ( 300 C+ NF )
2 N 2 F +300C ( N +1)
Where:
N = number of instalments
C = 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:
100 C T
N A
T = Total amount of predetermined term charges
A = amount financed
For example, take a look at Encik Ali case.
F= (100(12) x 140) / 12 x 1000 = 14
Thus, the annual percentage rate is:
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APR =
2 x 12 x 14 (300 x 12+12 x 14)

2 12 12 14 +300 12(12+1)
= 336(3768)/(4032+46800)
= 1,266,048/50,832
= 24.9065%
1.8 ISLAMIC CONCEPT
a) Al-Ijarah Thumma Al-bai
Under 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 PURCHASE
a) Advantages
i. Convenience in payment
The buyer is greatly benefited as he has to make the payment in
instalments. This system is greatly advantageous to the people having
ii.
iii.
iv.
limited income.
Increased Volume Of Sales
This system attracts more customers as the payment is to be made in easy
instalments. This leads to increased volume of sales.
Increased Profits
Large volume of sales ensures increased profits to the seller.
Encourages Savings
It 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.
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v.
Helpful For Small Traders

This system is a blessing for the small manufacturers and traders. They can
purchase machinery and other equipment on instalment basis and in turn
vi.
sell to the buyer charging full price.

Earning Of Interest
The seller gets the instalment which includes original price and interest.
The interest is calculated in advance and added in total instalments to be
vii.
paid by the buyer.

Lesser Risk
From 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) Disadvantages
i. Higher Price
A buyer has to pay higher price for the article purchased which includes
ii.
cost plus interest. The rate of interest is quite high.

Artificial Demand
Hire 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
iii.
buy the product.

Heavy Risk
The 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
iv.
goods fetch little price.

Difficulties in Recovery of Instalments
It 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 Families
The 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.
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2.0. BLOCK DISCOUNTING

2.1. DEFINITION
It 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
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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.
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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 discounting

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

a)
b)
c)
d)
e)
Motor vehicles
Motorcycles
Consumer durables
Leased equipment
Machinery
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2.5. Who can apply

a) Private and Public Limited Companies
b) Companies involved in credit granting business for several years
2.6.
Broad Financing Terms
a) Eligibility
: Private and Public Limited Companies

Already in credit granting business for
b) Interest Rate
several years
: 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 documents
Please bring along the following when applying for financing:
I.
M&A of your company
II.
Certified true copy of Certificate of Incorporation (Form 9)
III.
Certified true copy of Form 24 (from date of incorporation) &
latest Form 49
IV. Company's profile
V. Latest 3 years' audited accounts / financial statement
VI.
Latest 6 months' bank statements
VII.
Latest 6 months' sales and disbursement / amount financed
VIII.
Latest 6 months' collection
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3.0. LEASING
3.1. DEFINATION
Leasing 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 LEASING
a) CAPITAL/FINANCIAL LEASE
Financial 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 LEASE
Operating 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
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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 LEASE
i. Direct Lease
ii. Leveraged Lease
iii.
First Amendment Lease
iv. Sale and Leaseback
3.3.
PARTIES INVOLVE IN LEASING
a) 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 LEASED

Virtually any moveable asset can be leased.
a) Computers and IT related
File Servers
Hardware
Macro computers
Mainframes
b) Office equipment
Embossers/Folders
Facsimile Equipment
File Cabinets
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Furniture
Labelling Machines
c) Agricultural, Forestry, Fishing equipment
Harvesting and Planting
Hay and Cotton Bailers
Tractors
Dairy Machinery
Food Processing
Livestock Equipment
d) Telecommunication equipment
Multiplexers
Switches
Telephone systems
Transformers
e) Construction and heavy equipment
Bulldozers
Cement trucks
Compactors
Concrete equipment
Cranes
f) Material handling equipment

Forklifts
Pallet Jacks
Platform Lifts
Conveyers
g) Medical equipment
Blood Analysers
CT Scanners
Exam Tables
Dental Equipment
Heart Monitors
Lab Testing Equipment
Optical Equipment
h) Industrial and Manufacturing
Grinders
Lathes
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3.5.
STEP OF LEASING PROCESS

Step 1 Define Your Requirement
Business owner (lessee) decide on the equipment you would like to purchases and
negotiates cost with the Bank (lessor).
Step 2 Complete Your Application Form
Submit an equipment lease application by fax, e-mail, online, mail or deliver it inperson.
Step 3 We Process Your Application
We 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 Begin
After 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.
i.
BENEFIT LEASING
100% FINANCING
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Many 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 PAYMENT
Leasing 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 FLOW
Leases 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 PAYMENTS
The 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
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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 CONSIDERATIONS

Finally, 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 LEASING
i. NO OWNERSHIP
The 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,
ii.
even after the cost of the equipment has been fully covered.
LONG TERM EXPENSES
Although 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
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considerably more than the actual cost of the equipment without ever
actually owning it.
iii.
COST OF MAINTENANCE
Although 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 PROPERTY
Once 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.
CONCLUSION
In 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.
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4.0
4.1.
FACTORING
DEFINITION OF FACTORING
Factoring 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
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4.2.
CHARACTERISTICS OF FACTORING
The 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.
4.3.
FACTORING PROCESS
1. 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.
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4.4.
TYPE OF FACTORING
i) 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 factoring
The 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 equity
The 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 factoring
The 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 TRANSACTION
Factoring 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)
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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 FACTORING

Advantages:
a) Financing the suppliers
The factoring company pays the client the amount necessary for her
working capital, in exchange for her invoices.
b) Maintenance of the receivables account
The factoring company manages the trade debts of the client, keeping the
sales accounts ledgers and sending out the invoices.
c) Collection of receivables
The 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
debtor
The factoring company carries the risk of any bad debt (if account
receivable or debtor fails to pay).
Disadvantages
a) More expensive than a bank loan
Accounts 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 contracts
Factoring 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) Notifications
Factoring 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
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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 FACTORING
i. Value of invoice rm100,000
ii.
Credit period- net60
iii.
Factors reserve- 10%
iv.
Factoring fee- 1%
v. Interest rate- 1%
Amount of invoice
Less: factoring fee =0.1xrm100, 000
Less: factors reserve= 10%xrm100, 000
Amount of advance
Less: interest on advance= 1%x2monthxrm89,
000
Maximum advance
RM1, 000 + RM1, 780 = RM2, 780
RM100, 000
RM1, 000
RM10, 000
RM89, 000
RM1, 780
RM87, 220
4.7. CONCLUSION OF FACTORING

Factoring 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
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claims, because receivables factored without resources are not

part of the estate.
5.0. BRIDGING LOAN AND END FINANCING

5.1. DEFINITION
A 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.
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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
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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.
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5.2. PARTIES INVOLVED

In 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.
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5.3. TYPES OF BRIDGING LOAN

Open 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.
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5.4. RATES OF A BRIDGING LOAN

When 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.
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5.5. USEFUL OF BRIDGING LOAN

Situations 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)
b)
Second home, acquisition of a vacation residence either in the U.K or overseas.

Personal. There are lots of various other reasons for applying a bridging loan for
example repairing your credit score, weddings, holidays etc.
Buy to Let, unlock financing to allow you to increase your property portfolio.
c)
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.
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5.6. PROS AND CONS OF BRIDGING LOAN

One 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 LOAN
There 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 LOAN

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It 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.
First, analayze that are you a private limited company
registered with relevant regulatory authorities and with the
Construction Industry Development Board (CIDB)?
Then we can move on to the documents we'll need with your

application
Certified photocopy of Memorandum & Article of

Association,
Business Registration,
Form D,
Form 9,
Form 24 & 49.
Company and Holding Company profile,
Profile of Directors / Main Shareholders and
photocopy of each Directors Identity Card.
Please include the latest 3 years of Audited Financial

Accounts /
Statements for Company and Holding Company,
certified true copy of latest management accounts,
latest 6 months of Bank Statements from other banks.
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And don't forget a photocopy of Sales and Purchase

Agreement (if applicable),
photocopy of land title,
cash flow projection (for the specific development to be
financed with assumptions),
breakdown of the development cost and Gross Development
Value (GDV),
list of past,
current and future projects / development,
required information such as project description,
awarder,
contract period,
contract amount (where applicable),
valuation report (if available),
Feasibility Study and Market Study on the project,
photocopy of the land title to be developed and location map
(if available),
photocopy of all approvals granted pertaining to the project
such as building plan,
advertising permit, etc (if available).
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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
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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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REFERENCES
1. www.bankinginfo.com.my/02_know_your_products/0202_applying_for_loan/hire_pu
2.
3.
4.
5.
rchase.php
www.rhb.com.my/loans/hire-purchase/hp_hire_main.html
http://www.ask.com/business-finance/types-hire-purchases-a183ac0c3f79e5d0#
http://www.akpk.org.my/learning/articles-and-tips/id/223/hire-purchase-loan
http://www.tradingstandards.gov.uk/cgi-bin/brighton-hove/con1item.cgi?
file=*adv0030-1011.txt
6. http://www.calculator.com.my/car-loan#.VSibhvmUdCo
7. http://credit.about.com/od/glossary/g/apr.htm?utm_term=annual%20percentage
%20rate&utm_content=p1-main-1title&utm_medium=sem&utm_source=msn&utm_campaign=adid-199d47ef-982949d8-9031-e1e7286076f9-0-ab_msp_ocode4609&ad=semD&an=msn_s&am=phrase&q=annual%20percentage
%20rate&dqi=&o=4609&l=sem&qsrc=999&askid=199d47ef-9829-49d8-9031e1e7286076f9-0-ab_msp
8. http://www.efinancemanagement.com/sources-of-finance/difference-between-leasefinancing-vs-hire-purchase
9. http://www.yourarticlelibrary.com/stores/hire-purchase-system-its-advantages-anddisadvantages/25917/
10. http://www.entrepreneur.com
11. http://www.plccf.com.my
12. http://www.orix.com.my
13. http://www.leasetips.com
14. www.ibbm.org.my
15. http://www.usafactoring.com/factoring.html
16. http://www.federalnational.com/blog/postid/87/advantages-and-disadvantages-offactoring.aspx
17.
http://biztaxlaw.about.com/od/glossaryf/g/factoring.htm
18.
http://morrisonfinancial.com/articles/factoring/
19. http://www.entrepreneur.com/encyclopedia/factoring
20. http://www.teamtechnology.co.uk/what-is-factoring.html
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1.

1.3. ARTIES INVOLVED IN HIRE PURCHASE

b) Private home appliances

1.6. HIRE PURCHASE AGREEMENT

1.6.1 The following obligations have to be fulfilled by the hirer

1.7 COMPUTATIONS OF HIRE PURCHASE

Monthly rental payment /instalment

Statutory Rebate (SR)

SPECIALISED FINANCIAL SERVICES

:14% (flat rate)

Time period for payment of the loan : 5 years / 60 months

Annual Percentage Rate (APR)

2 x 12 x 14 (300 x 12+12 x 14)

Helpful For Small Traders

sell to the buyer charging full price.

paid by the buyer.

cost plus interest. The rate of interest is quite high.

buy the product.

goods fetch little price.

2.0. BLOCK DISCOUNTING

The company offering finance builds up a portfolio of credit agreements which

Block Discounting is where Individual X, dealing business by way of hire-purchase

2.2. Block Discounting That Offered By Maybank

A credit facility for motor dealers, credit and leasing companies to

Block Discounting is a credit facility for reputable motor dealers,

2.3. Benefits of block discounting

2.4. Types of good finance

2.5. Who can apply

Broad Financing Terms

: Private and Public Limited Companies

is according to types of goods financed

EQUIPMENT CAN BE LEASED

SPECIALISED FINANCIAL SERVICES

f) Material handling equipment

STEP OF LEASING PROCESS

SPECIALISED FINANCIAL SERVICES

SPECIALISED FINANCIAL SERVICES

BALANCE SHEET CONSIDERATIONS

Figure 4.0.1 Example process and parties involved in factoring

ADVANTAGES AND DISADVANTAGE OF FACTORING

SPECIALISED FINANCIAL SERVICES

4.7. CONCLUSION OF FACTORING

claims, because receivables factored without resources are not

5.0. BRIDGING LOAN AND END FINANCING

Besides, bridging loans are

from house buyers.

Usually, a developer needs funds for housing or property

5.2. PARTIES INVOLVED

5.3. TYPES OF BRIDGING LOAN

5.4. RATES OF A BRIDGING LOAN

1.25% month to month interest rate.

An average of 70% Loan to Value.

A set-up charge of roughly two percent.

5.5. USEFUL OF BRIDGING LOAN

Second home, acquisition of a vacation residence either in the U.K or overseas.

e) Extensions to your residence.

5.6. PROS AND CONS OF BRIDGING LOAN

PROCESS IN HOW TO APPLY BRIDGING LOAN

SPECIALISED FINANCIAL SERVICES

Then we can move on to the documents we'll need with your

Certified photocopy of Memorandum & Article of

Please include the latest 3 years of Audited Financial

And don't forget a photocopy of Sales and Purchase