The source of financing I
would recommend to Genting is factoring. It is also known as account
receivables financing. It is a transaction where a company sells its
receivables or invoices to a third party financial institution, which is called
factor. Under factoring, there are three parties involves, which are the
selling company, the debtors or receivables and the factor (financial
institution or bank). The factors will then be liable to collect the due amounts
from the receivables and the company who sell the receivables will not be held any
liability to chase the money. Factoring is also being seen as a form of invoice
discounting as the buyers will buy the invoices at a discount price so that the
buyers are able to make a profit upon the settlement of the invoices.
There are two different
types of factoring, which is non-recourse factoring and recourse factoring.
Non-recourse factoring happens where the account receivables are sold at a
specific price. The factors will be liable for the collection of the accounts
and seller is not liable to pay back the factors if the accounts become bad
debts. So, it is an expensive factoring form but the seller will not have any
credit risk. Recourse factoring is that the seller is having the obligation to
repay the factors if the accounts are uncollectible as the creditworthiness of
the accounts receivable is not guaranteed by the factors. Recourse factoring is
substantially less expensive than non-recourse factoring as the seller is
expose to the credit risk.
As a conclusion, I would
recommend factoring to Genting Berhad as it brings some benefits to the
company. It can help the company to receive cash from their receivables quickly
without the need to wait the receivables of the company to pay off their debts.
It will assist the company to build up their cash flow quickly as the company
can receive an amount of money upon selling the invoices to the factors. Having
quick cash inflows will help the company to pay their employees and deal with
customer orders easily.
Furthermore, by using
factoring, Genting can focus on their core business. This is because the
company does not need to spend time chasing the amount owes by the receivables
as it is the responsibility of the factors after they buy the invoices. With
the time the company saved, it can be utilised for the business operations of
the company. For example, managers of Genting are able to spend more time in
order to come out with innovative ideas that can attract the customers to visit
Moreover, factoring is
not a type of loan or debt. So, it will not increase the leverage ratio of
Genting Berhad. This is because factoring is just selling the invoices or
receivables to another company at a lower price, there is no any form of
borrowings incurred. Hence, by using factoring as source of financing, the debt
of the company will not increase.