MODERN FINANCE TECHNIQUES
Arman BALÇIK
2010503011
Industrial Engineering Department
Dokuz Eylül University
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MODERN FINANCE TECHNIQUES
•As a result of the globalization financial system has
changed. Modern Finance Techniques –which are
leasing, factoring, forfaiting and franchising- help all
the sectors in this new financial system.
•Manufactories –which are especially new- use these
techniques to get huge profits without the huge
investments.
•All the manufactories –new ones and old ones- use
these techniques for fulfill their investments.
•These techniques are hard to understand without
well knowledge about economy science. I’m trying to
explain these techniques superficially.
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There are four types of modern finance techniques;
•Leasing
•Factoring
•Forfaiting
•Franchising
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LEASING
•Leasing is an effective investment method for
companies, especially for those growing ones, through
which they can provide medium and long term
financing to fulfill their investments.
•In leasing, the equipment required by a firm is
purchased by the leasing company and then leased to
the firm, and at the end of the lease period, the title of
the equipment is transferred to the firm. Therefore,
leasing provides significant advantages to businesses
in equipment purchases.
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Simple explanation of leasing
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Should you buy or lease your first wheel?
Leasing has been used since 2000 B.C. People leased
ships, fields, buildings and agricultural machines for
years.
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TYPES OF LEASING
1) Finance Leasing
2) Operating Leasing
3) Contract Hire
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1) Finance Leasing
•A long-term lease over the expected life of the
equipment, usually three years or more, after which
you pay a nominal rent or can sell or scrap the
equipment - the leasing company will not want it any
more.
•The leasing company recovers the full cost of the
equipment, plus charges, over the period of the lease.
•Although you don't own the equipment, you are
responsible for maintaining and insuring it.
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•You must show the leased asset on your balance
sheet as a capital item, or an item that has been
bought by the company.
•Leases of over seven years, and in some cases over
five years, are known as 'long-funding leases' under
which you can claim capital allowances as if you had
bought the asset outright.
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2) Operating Leasing
•A good idea if you don't need the equipment for its
entire working life.
•The leasing company will take the asset back at the
end of the lease.
•The leasing company is responsible for maintenance
and insurance.
•You don't have to show the asset on your balance
sheet.
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3) Contract Hire
• Often used for company vehicles.
• The leasing company takes some responsibility for
management and maintenance, such as repairs
and servicing.
• You don't have to show the asset on your balance
sheet.
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FACTORING
•Factoring - also known as 'debt factoring' - involves
selling your invoices to a third party.
•In return they will process the invoices and allow you
to draw funds against the money owed to your
business.
•Essentially, these companies provide a finance, debt
collection and ledger management service.
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How factoring works
•Factoring provides a fast prepayment against your
sales ledger.
•It allows you, at a cost, to flexibly increase your
working capital and improve cash flow.
•Factoring is offered to businesses trading with other
businesses on credit terms.
•It is not normally available to retailers or to cash
traders.
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Simple explanation of factoring
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FORFAITING
•In trade finance, forfaiting involves the purchasing of
receivables from exporters.
•The forfaiter takes on all risks involved with the
receivables.
•It is different from the factoring operation in the
sense that forfaiting is a transaction-based operation
while factoring is a firm-based operation: In factoring,
a firm sells all its receivables while in forfaiting, the
firm sells one of its transactions.
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Simple explanation of forfaiting
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The characteristics of forfaiting transaction
The characteristics of a forfaiting transaction are:
•Credit is extended to the exporter for a period
ranging between 180 days to seven years.
•Minimum bill size is normally US$ 250,000, although
$500,000 is preferred.
•The payment is normally receivable in any major
convertible currency.
•A letter of credit or a guarantee is made by a bank,
usually in the importer's country.
•The contract can be for either goods or for services.
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FRANCHISING
•Franchising is the practice of using another firm's
successful business model.
•For the franchisor, the franchise is an alternative to
building 'chain stores' to distribute goods and avoid
investment and liability over a chain.
•The franchisor's success is the success of the
franchisees.
•The franchisee is said to have a greater incentive
than a direct employee because he or she has a direct
stake in the business.
•Fast food business is a good example for franchising.
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“Here’s your lemonade and here’s some descriptive
literature about my franchising opportunities.”
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Song Of This Presentation: “Money” by “Pink Floyd”!
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