factoring & forfeiting

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FACTORING FORFAITING

LETTER OF CREDIT

PRESENTING TO : PROF. IMRAN KAZI

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FACTORING

FACTORING

MEANING STEPS INVOLVED IN FACTORING

• INVOICE• NOTIFY THE FACTOR• FUNDING• FALLOW UP • PAYMENT RECEIVED • STATEMENT OF ACCOUNTS

PARTIES INVOLVED IN FACTORING

CHARACTERISTIC OF FACTORING

• MONEY MARKET INSTRUMENT• BOOK DEBTS• NOT A NEGOTIABLE INSTRUMENT• DISCOUNT CHARGE AND SERVICE CHARGE• WITHOUT RECOURSE• MARGIN

FUNCTION OF FACTORING

• INSTANT CASH• FOLLOW UP AND SPEEDY COLLECTION• SALES LEDGER AND ADMINISTRATIVE• CREDIT PROTECTION• ADVISORY SERVICES

BENEFITS TO SELLER AND CUSTOMERS

SELLER• LIQUIDITY• LEVERAGE• LEDGER MANAGEMENT• ADD ON BENEFITS• STATEMENTS

CUSTOMERS• CREDIT PERIOD• NO DOCUMENTATIONS • PERIODICAL

STATEMENTS

COST OF FACTORING AND ITS DISADVANTAGES

DISADVANTAGES• IMAGES• NOT SUITABLE FOR ONE

TIME• HIGHER COST

COST OF FACTORING• SERVICE FEES• INTEREST CHARGE• DISCOUNT CHARGE

TYPES OF FACTORING

• NON-RECOURSE FACTORING• RECOURSE FACTORING• INVOICE FACTORING • MATURITY FACTORING• UNDISCLOSED FACTORING• DOMESTIC FACTORING• INTERNATIONAL FACTORING• GUARANTEE BASED FACTORING

INTERNATIONAL FACTORING

BENEFITS OF INTERNATIONAL FACTORING• INCREASE SALES• PROTECTION• FASTER COLLECTION• SAFELY OFFERS• LOWER COST

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FORFAITING

FEATURES OF FORFAITING

• 100% FINANCING

• PAYMENT OBLIGATION

• DEBT ADMINISTRATION

• CURRENCY

• TRANSACTION VALUE

• INTEREST RATE

PROCESS OF FORFAITING

ADVANTAGES / DISADVANTAGE

• ELIMINATE RISK

• ENHANCES COMPETITIVE ADVANTAGES

• IMPROVE CASH FLOW

• INCREASE SPEED AND SIMPLICITY OF TRANSACTION

• TO EXPORTER

• TO IMPORTER

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LETTER OF CREDIT

LETTER OF CREDIT

• INTRODUCTION

• MEANING

• HOW IT WORK’S

1. COMMERCIAL LETTER OF CREDIT

2. STANDBY LETTER OF CREDIT

UNDERSTANDING AND USING LETTER OF CREDIT

PROCESS OF LETTER OF CREDIT

1. COMMERCIAL INVOICE2. BILL OF LADING3. WARRANTY OF TITLE4. LETTER OF INDEMNITY

• COMMON DEFECTS IN DOCUMENTATION• TIPS FOR EXPORTERS

STANDARD FORMS OF DOCUMENTATION

• PARTIES INVOLVED IN LETTER OF CREDIT TRANSACTION

a. BENEFICIARYb. ISSUING BANKc. ADVISING OR CONFIRMING BANKd. APPLICANT (IMPORTER)

ELEMENTS OF LETTER OF CREDIT

• LETTER OF CREDIT CHARACTERISTICS1. NEGOTIABILITY2. REVOCABILITY3. TRANSFER AND ASSIGNMENT4. SIGHT AND TIME DRAFTS

• SETTLEMENTS UNDER A LETTER OF CREDIT1. SIGHT PAYMENT2. DEFERRED PAYMENT3. ACCEPTANCE4. NEGOTIATING BANK

TYPES OF LETTER OF CREDIT

• REVOCABLE – IRREVOCABLE CREDIT• CONFIRMED CREDIT• UNCONFIRMED CREDIT• TRANSFERABLE CREDIT• REVOLVING CREDIT• BACK – TO – BACK CREDIT• RED CLAUSE CREDIT

ADVANTAGES OF LETTER OF CREDIT

• RISK INVOLVED IN LETTER OF CREDIT

• SUMMARY

DIFFERENCE BETWEEN FACTORING AND FORFAITING

1.SUITABLE FOR ONGOING OPEN ACCOUNT SALES, NOT BACKED BY LC OR ACCEPTED BILLS OR EXCHANGE.

2.USUALLY PROVIDES FINANCING FOR SHORT-TERM CREDIT PERIOD OF UPTO 180 DAYS.

1. ORIENTED TOWARDS SINGLE TRANSACTIONS BACKED BY LC OR BANK GUARANTEE.

2. FINANCING IS USUALLY FOR MEDIUM TO LONG-TERM CREDIT PERIODS FROM 180 DAYS UPTO 7 YEARS THOUGH SHORT TERM CREDIT OF 30–180 DAYS IS ALSO AVAILABLE FOR LARGE TRANSACTIONS.

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5. SEPARATE CHARGES ARE APPLIED FOR:-

• FINANCING• COLLECTION• ADMINISTRATION• CREDIT PROTECTION AND • PROVISION OF INFORMATION.

5. SINGLE DISCOUNT CHARGES IS APPLIED WHICH DEPEND ON:-

• GUARANTEEING BANK AND COUNTRY RISK,

• CREDIT PERIOD INVOLVED AND

• CURRENCY OF DEBT.

CONT…

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CONT….

6. SERVICE IS AVAILABLE FOR DOMESTIC AND EXPORT RECEIVABLES.

7. FINANCING CAN BE WITH OR WITHOUT RECOURSE; THE CREDIT PROTECTION COLLECTION AND ADMINISTRATION SERVICES MAY ALSO BE PROVIDED WITHOUT FINANCING.

6. USUALLY AVAILABLE FOR EXPORT RECEIVABLES ONLY DENOMINATED IN ANY FREELY CONVERTIBLE CURRENCY.

7. IT IS ALWAYS ‘WITHOUT RECOURSE’ AND ESSENTIALLY A FINANCING PRODUCT.