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What is Leasing?-What is Transport Documents ?

A. What is Leasing?

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.

Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments. The lessee is the receiver of the services or the assets under the
lease contract and the lessor is the owner of the assets. The relationship between the tenant and the landlord is called a tenancy, and can be for a fixed or an indefinite period of time (called the term of the lease). The consideration for the lease is called rent.

Under common law, a lease should have three essential characteristics:

 A definite term (whether fixed or periodic)
 At a rent
 confer exclusive possession

 

B. Types of Leasing

There are several types of equipment finance leases. The type of lease programs offered depend on what kind
of equipment leased, what you want to get out of this lease and what your long-term goals.

 

Finance Lease: Finance lease, also known as Full Payout Lease, is a type of lease wherein the lessor transfers substantially all the risks and rewards related to the asset to the lessee. Generally, the ownership is transferred
to the lessee at the end of the economic life of the asset. Here, lessor is only a financier and lessee is responsible for maintaining and insuring the asset. Example of a finance lease is big industrial equipment.

 

Operating Lease: On the contrary, in operating lease, risk and rewards are not transferred completely to the lessee. The term of lease is very small compared to finance lease. The lessor depends on many different lessees
for recovering his cost. Ownership along with its risks and rewards lies with the lessor. Here, lessor is not only acting as a financier but he also provides additional services required in the course of using the asset or
equipment. Example of an operating lease is music system leased on rent with the respective technicians.

 

Sale and Lease Back: In the arrangement of sale and lease back, the lessee sells his asset or equipment to the lessor (financier) with an advanced agreement of leasing back to the lessee for a fixed lease rental per
period. It is exercised by the entrepreneur when he wants to free his money, invested in the equipment or asset, to utilize it at whatsoever place for any reason.

Direct Lease: On the other hand, direct lease is a simple lease where the asset is either owned by the lessor or he acquires it. In the former case, the lessor and equipment supplier are one and the same person and this
case is called ‘bipartite lease’. In bipartite lease, there are two parties. Whereas, in the latter case, there are three different parties viz. equipment supplier, lessor, and lessee and it is called tripartite lease. Here, equipment supplier and lessor are two different parties.

Single Investor Lease and Leveraged Lease: In single investor lease, there are two parties – lessor and lessee. The lessor arranges the money to finance the asset or equipment by way of equity or debt. The lender is
entitled to recover money from the lessor only and not from the lessee in case of default by lessor. Lessee is entitled to pay the lease rentals only to the lessor.
Leveraged lease, on the other hand, has three parties – lessor, lessee and the financier or lender. Equity is arranged by the lessor and debt is financed by the lender or financier. Here, there is a direct connection of the
lender with the lessee and in case of default by the lessor; the lender is also entitled to receive money from lessee. Such transactions are generally routed through a trustee.

Domestic and International Lease: When all the parties of the lease agreement reside in the same country, it is called domestic lease.

International lease are of two types – Import Lease and Cross Border Lease. When lessor and lessee reside in same country and equipment supplier stays in different country, the lease arrangement is called import lease.
When the lessor and lessee are residing in two different countries and no matter where the equipment supplier stays, the lease is called cross border lease.

C. Advantages & Disadvantages of leasing Advantages of Leasing

 Businesses avoid large capital outlays when acquiring the use of an asset, thereby freeing up cash for more productive uses.

 In the case of the start ups, leasing also helps to ascertain a business’s asset requirements before purchase of assets is made. As an example, a business can rent a building space for a year to obtain a better understanding of the business’s building requirements before committing to purchasing
a space.

 Leasing offers flexibility, especially with assets which tend to become obsolete very fast.

 Leasing does not result in restrictions on company’s financial operations due to loan covenants.

 If firm the experiences liquidity problem, it can lease back an asset to the lessor that the firm already owns. Sale-leaseback arrangements consist of selling an asset to the lessor and leasing it back. Such action can the improve liquidity of the firm.

Transport document :

Goods are carried from the Exporter (seller) to Importer (buyer) through various modes of transport, viz: Truck, Rail, Air, Ship etc. All these modes are separately at a glance is called Transport document. Transport documents issued by the freight forwarders. Unless otherwise authorized in the credit, banks will only accept a transport document issued by a freight forwarder if it appears on its face to indicate the name of the carrier duly authenticated by the freight forwarder.

 

Types of Transport document:

(i)    Marine/Ocean bill of lading or simply Bill of Lading (BL) in case of goods delivered to a ship for carriage by sea.

(ii)    Air transport document/Airway bill (AWB) in case of air shipment of goods.

(iii)    Road, Rail or Inland Waterway Transport Document/Truck receipt (TR) in case of goods carried by Truck, Railway Receipt (RR) in case of goods carried by Rail and so on.

(iv)    Courier receipt and Postal receipt in case of shipment of goods by courier and by post respectively.

 

Contents of Transport document:

According to Guide to Documentary Credit Operations, an ICC publication, the transport document should contain the following information:

(i)    It must be issued by a named carrier or his agent.

(ii)    Description of goods consistent with that in the credit.

(iii)    Identifying shipping marks.

(iv)    The name of the carrying vessel ( in case of marine B/L) or the intended carrying vessel ( in case of multi modal transport document including sea transport)

(v)    An indication of dispatch or taking in charge or loading on board as the case may be.

(vi)    An indication of place of such dispatch or taking in charge or loading on board and the place of final destination.

(vii)    The name of shipper, consignee (if not made out ‘to order’) and the name & address of the notify party.

(viii)    Whether freight has been paid or still to be paid.

(ix)    Date of issuing the document

(x)    The number of originals if issued in more than one original.

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