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    Factoring & Ing

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    Abhik Biswas
    Factoring involves the sale of receivables at a discount to obtain funds. It provides financing, account maintenance, debt collection, and credit risk protection services. Forfaiting is a form of financing international trade receivables through the purchase of trade bills or promissory notes without recourse to the seller. The forfaiter assumes full risk of non-payment and pursues collection, while a factor also maintains sales ledgers and provides short-term financing and credit services domestically or internationally.

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    Factoring & Ing

    Uploaded by

    Abhik Biswas
    24 views17 pages
    Factoring involves the sale of receivables at a discount to obtain funds. It provides financing, account maintenance, debt collection, and credit risk protection services. Forfaiting is a form of financing international trade receivables through the purchase of trade bills or promissory notes without recourse to the seller. The forfaiter assumes full risk of non-payment and pursues collection, while a factor also maintains sales ledgers and provides short-term financing and credit services domestically or internationally.

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    Factoring & ing

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    Factoring involves the sale of receivables at a discount to obtain funds. It provides financing, account maintenance, debt collection, and credit risk protection services. Forfaiting is a form of financing international trade receivables through the purchase of trade bills or promissory notes without recourse to the seller. The forfaiter assumes full risk of non-payment and pursues collection, while a factor also maintains sales ledgers and provides short-term financing and credit services domestically or internationally.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    24 views17 pages

    Factoring & Ing

    Uploaded by

    Abhik Biswas
    Factoring involves the sale of receivables at a discount to obtain funds. It provides financing, account maintenance, debt collection, and credit risk protection services. Forfaiting is a form of financing international trade receivables through the purchase of trade bills or promissory notes without recourse to the seller. The forfaiter assumes full risk of non-payment and pursues collection, while a factor also maintains sales ledgers and provides short-term financing and credit services domestically or internationally.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 17

    Factoring & Forfaiting

    Factoring
    • Factoring involves the outright sale of receivables
    at a discount to a factor to obtain funds.
    • It an arrangement between factor and his client,
    which include at least two of the following
    services to be provided by the factor
    – Finance
    – Maintenance of Accounts
    – Collection of Debts
    – Protection against Credit Risk
    Definition
    • Factoring can be broadly defined, “as an
    agreement in which receivables arising out of
    sale of goods/ services are sold by the firm
    (client) to the factor (a financial intermediary )
    as a result of which the title to the goods &
    services represented by the said receivables
    passes on to the factor.
    Parties of the agreement
    • The buyer
    • The seller
    • The factor
    Functions of a Factor
    • Maintenance / Administration of sales ledger
    • Collection of accounts receivables
    • Financing trade debts
    • Assumption of credit risk/ credit control and
    credit protection
    • Provision of advisory services
    Contd.

    Factor

    Buyer

    Seller
    Cost of Service
    • Commission: The charges for collection and
    sales ledger administration is in the form of a
    commission expressed as a percent of the
    value of debt purchased.
    • Discount: It is the interest charge for short
    term financing by the factor between the date
    of advance payment and the date of collection
    payment date.
    Types of Factoring
    • Recourse Factoring Vs. Non Recourses
    Factoring
    • Advance Vs. Maturity Factoring
    • Full Factoring
    • Disclosed Vs. Undisclosed Factoring
    • Domestic Vs. International Factoring
     Recourse Factoring Vs. Non Recourses Factoring:

    Recourse

    ●
    It is the basis on which receivables are sold to the factor with the understanding that
    all credit risks would be borne by the firm.

    . Non Recourse

    ●
    It is the basis on which receivables are sold to the factor with the understanding that
    all credit risks are on the purchased accounts (factor)
    Advance Vs. Maturity Factoring

    Advance

    ●
    The factor pays a pre-specified portion, ranging between three fourth to nine-tenths of factored
    receivables in advance, the balance being paid upon collection/ on the guaranteed payment
    date.

    Maturity

    ●
    It is an arrangement under which the factor does not make a prepayment to the
    client.
    Full Factoring
    • It provides the entire spectrum of services
    namely, collection, credit protection, sales
    ledger administration and short term finance.
    Disclosed Vs. Undisclosed Factoring

    Disclosed

    ●
    The name of the factor is disclosed in the invoice by the supplier – manufacturer
    of the goods asking the buyer to make payment to the factor.

    Undisclosed

    ●
    The name of the factor is not disclosed in the invoice, although the factor
    maintains the sales ledger of the supplier –manufacturer.
    Domestic Vs. International Factoring

    Domestic

    ●
    It is the factoring in which the buyer, seller- supplier and factor are domiciled in the
    same country.

    International

    ●
    Usually it includes four parties to a cross border factoring transaction.
    ●
    They are exporter (Client), Importer (Customer), export factor and import factor
    Factoring firms in India
    SBI Factors and commercial services Pvt. limited

    Global Trade Finance (P) Ltd

    Foremost factors limited

    HSBC Factoring 

    Can Factors Ltd.

    ECGC

    CITI Bank
    Forfaiting
    • It is a form of financing of receivables
    pertaining to international trade.
    • It denotes the purchase of trade bills/
    promissory notes by a bank/ financial
    institutions without recourse to the seller.
    • The purchase is in the form of discounting the
    document covering the entire risk of
    nonpayment in collection.
    • All risks and collection problems are fully
    responsibility of the purchaser (Forfaiter), who
    pays cash to seller after discounting the
    bills/notes.
    • The forfeiter may hold these notes/bills till
    maturity for payment by the importer’s bank.
    • Alternatively, he can securities them & sell the
    short term paper in the secondary market as
    high yielding unsecured paper.
    Forfaiting & International factoring
    A forfaiter charges a premium for exchange risk A factor does not guard against exchange rate fluctuations

    Pure financing arrangements Also includes ledger administration & collection

    Finances notes/bills spread over three to five year Essentially a short term financing Internatio
    Forfaiting nal
    factoring

    Depends on the bank guarantee Credit standing of the exporter

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