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    Hire Purchase N Factoring

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    priya
    Hire purchase is a type of installment credit where a buyer (hirer) agrees to periodically pay rent for goods that includes principal and interest payments, with an option to purchase the goods. Ownership of the goods remains with the seller until the final installment is paid. The Hire Purchase Act of 1972 regulates these agreements and defines key aspects of hire purchase transactions. National Small Industries Corporation (NSIC) provides machinery and equipment to small businesses on a hire purchase basis, following procedures like evaluating creditworthiness before goods are dispatched. Factoring is another financial service where a firm can sell its receivables or debts to a factoring organization in exchange for an immediate cash advance, with the factor then taking responsibility for debt collection and

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    Hire Purchase N Factoring

    Uploaded by

    priya
    155 views2 pages
    Hire purchase is a type of installment credit where a buyer (hirer) agrees to periodically pay rent for goods that includes principal and interest payments, with an option to purchase the goods. Ownership of the goods remains with the seller until the final installment is paid. The Hire Purchase Act of 1972 regulates these agreements and defines key aspects of hire purchase transactions. National Small Industries Corporation (NSIC) provides machinery and equipment to small businesses on a hire purchase basis, following procedures like evaluating creditworthiness before goods are dispatched. Factoring is another financial service where a firm can sell its receivables or debts to a factoring organization in exchange for an immediate cash advance, with the factor then taking responsibility for debt collection and

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    Hire Purchase n Factoring

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    Hire purchase is a type of installment credit where a buyer (hirer) agrees to periodically pay rent for goods that includes principal and interest payments, with an option to purchase the goods. Ownership of the goods remains with the seller until the final installment is paid. The Hire Purchase Act of 1972 regulates these agreements and defines key aspects of hire purchase transactions. National Small Industries Corporation (NSIC) provides machinery and equipment to small businesses on a hire purchase basis, following procedures like evaluating creditworthiness before goods are dispatched. Factoring is another financial service where a firm can sell its receivables or debts to a factoring organization in exchange for an immediate cash advance, with the factor then taking responsibility for debt collection and

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    155 views2 pages

    Hire Purchase N Factoring

    Uploaded by

    priya
    Hire purchase is a type of installment credit where a buyer (hirer) agrees to periodically pay rent for goods that includes principal and interest payments, with an option to purchase the goods. Ownership of the goods remains with the seller until the final installment is paid. The Hire Purchase Act of 1972 regulates these agreements and defines key aspects of hire purchase transactions. National Small Industries Corporation (NSIC) provides machinery and equipment to small businesses on a hire purchase basis, following procedures like evaluating creditworthiness before goods are dispatched. Factoring is another financial service where a firm can sell its receivables or debts to a factoring organization in exchange for an immediate cash advance, with the factor then taking responsibility for debt collection and

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    of 2

    15.

    8 CONCEPT AND MEANING OF HIRE


    PURCHASE
    Hire purchase is a type of instalment credit under which the hire purchaser, called the
    hirer, agrees to take the goods on hire at a stated rental, which is inclusive of the
    repayment of principal as well as interest, with an option to purchase. Under this
    transaction, the hire purchaser acquires the property (goods) immediately on signing
    the hire purchase agreement but the ownership or title of the same is transferred only
    when the last instalment is paid. The hire purchase system is regulated by the Hire
    Purchase Act 1972. This Act defines a hire purchase as an agreement under which
    goods are let on hire and under which the hirer has an option to purchase them in
    accordance with the terms of the agreement and includes an agreement under which:
    1) The owner delivers possession of goods thereof to a person on condition that
    such person pays the agreed amount in periodic instalments.
    2) The property in the goods is to pass to such person on the payment of the last
    of such instalments, and
    3) Such person has a right to terminate the agreement at any time before the
    property so passes.
    Hire purchase should be distinguished from instalment sale wherein property passes
    to the purchaser with the payment of the first instalment. But in case of HP
    (ownership remains with the seller until the last instalment is paid) buyer gets
    ownership after paying the last instalment. HP also differs form leasing.

    15.10 NSIC AND HIRE PURCHASE


    Small scale firms can acquire industrial machinery, office equipment, vehicles, etc.,
    without making full payment through hire purchase. With the help of assets acquired
    through hire purchase they can produce and sell. From the earning payments can
    easily be made in instalments. Ultimately the ownership of assets can be acquired.
    Now several agencies like National Small Industries Corporation (NSIC) provide
    machinery and equipment to small scale units on hire purchase basis and on lease
    basis. NSIC follows the following Hire Purchase procedure and Hire Purchase
    Scheme for financing plant and machinery to small scale units.

    15.11 FACTORING
    Factoring is another type of financial service provided by the specialist organizations.
    When small scale firms sell on credit basis, collection of receivable poses a problem.
    In that case factoring organizations play an important role in collection of debtors.
    Factoring involves sale of receivables to specialized firm, called factors. Factors
    collect receivables and also advance cash against receivables to solve the client firms
    liquidity problem. For providing their services, they charge interest on advance and
    commission for other services. In other words, factoring is an arrangement under
    which a financial institution (called factor) undertakes the task of collecting the book
    debts of its client in return for a service charge in the form of discount or rebate. The

    factoring institution eliminates the clients risk of bad debts by taking over the
    responsibility of book debts due to the client. The factoring institution advances a
    proportion of the value of book debts of the client immediately and the balance on
    maturity of book debts.

    15.11.1 FACTORING PROCEDURE


    The agreement between the supplier and the factor specifies the factoring procedure.
    Usually the firm sends the customers order to the factor for evaluating the customers
    creditworthiness and approval. Once the factor is satisfied about the customers credit
    worthiness and agrees to buy receivables, the firm dispatches goods to the customer.
    The customer will be informed that his account has been sold to the factor, and he is
    instructed to make payment directly to the factor. To perform his functions of credit
    evaluation and collection for a large number of clients, a factor may maintain a credit
    department with specialized staff. Once the factor has purchased a firms receivables
    and if he agrees to own them, he will have to provide protection against any bad-debt
    losses to the firm.

    15.11.2 MERITS
    1. As a result of factoring services, the enterprise can concentrate on manufacturing
    and selling.
    2. The risk of bad debts is eliminated.
    3. The factoring institution also provides advice on business trends and other related
    matters.
    In India, subsidiaries of four Indian banks-State Bank of India, Canara Bank, Punjab
    National Bank and Allahabad Bank are providing factoring services.

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