factoring n forfaiting

8/9/2019 Factoring n Forfaiting

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FACTORING


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FEATURES OF FACTORING Factoring is a mode of financing as well as a

financial service provided ! t"e specialistcompanies called factors

Factoring is a contract#al service arising o#t of t"e

agreement etween t"e #siness firm $clients% and

t"e factors Factoring is a contin#o#s arrangement etween t"e

factor and t"e client firms& eca#se t"e invoices of

t"e client firm are contin#o#sl! factored in'

Factoring enales t"e conversion of o#tstanding

receivales into cas" flows


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T()ES OF FACTORING Reco#rse factoring'

Non*reco#rse factoring'

Advance factoring

+an, participation factoring -at#rit! factoring'

Notified and #ndisclosed factoring

F#ll factoring

Invoice factoring'

E.port factoring


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RECOURSE FACTORING

T"is is a t!pe of factoring in w"ic"

receivales are sold to t"e factor wit" t"e

#nderstanding t"at all credit ris, wo#lde t"e ond ! t"e firm'


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NON*RECOURSE FACTORING

T"is a t!pe of factoring process in w"ic"

receivales are sold to t"e factor wit" t"e

#nderstanding t"at all credit ris, wo#ld eond ! t"e factors'


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-ATURIT( FACTORING

In t"is t!pe of factoring & factor does not

ma,e an! advance pa!ment to t"e client'

T"e amo#nt will paid ! t"e factor ont"e g#aranteed pa!ment date or at t"e

time of collection from detors'


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AD/ANCE FACTORING

T"e factor pa!s a pre*specified portion&

ranging from 01 2 34 5 of t"e factored

receivales in advance& t"e alance eingpaid #pon collection on t"e g#aranteed

pa!ment date'


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+AN6 )ARTICI)ATION

FACTORING Under t"is& a an, provides an advance to

t"e client to finance a part& sa! 145 of t"e

factor reserve& i'e' t"e factored det lessadvance given ! t"e factor'


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-at#ring factoring

Also ,nown as collection factoring' Under

t"is& t"e factor does not ma,e a pre pa!ment

to t"e client' T"e pa!ment is made eit"er ont"e g#aranteed pa!ment date or on t"e date

of collection'


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NOTIFIED AND UNDISC7OSED FACTORING8

In case of notified factoring& t"e c#stomer isinformed ao#t t"e assignment of t"e det to t"e

factoring agent and is also as,ed to pa! t"e d#es to

t"e factor instead of to t"e firm'

On t"e ot"er "and& in t"e #ndisclosed factoring&t"e factoring arrangement is not disclosed to t"e

c#stomer #t t"e c#stomer is re9#ired to ma,e t"e

pa!ment to t"e c"anged address' T"is is also

,nown as non*notified factoring'


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FU77 FACTORING

Comines t"e feat#res of almost all t"e

factoring services'


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IN/OICE FACTORING

It is simpl! a ill disco#nting process'

Invoice disco#nting is a form of s"ort*term orrowing

often #sed to improve a compan!:s wor,ing capital

and cas" flow position'Invoice disco#nting allows a #siness to draw mone!

against its sales invoices efore t"e c#stomer "as

act#all! paid' To do t"is& t"e #siness orrows a

percentage of t"e val#e of its sales ledger from afinance compan!& effectivel! #sing t"e #npaid sales

invoices as collateral for t"e orrowing'


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E;)ORT FACTORING

Also ,nown as international factoring'

Deals wit" e.port sales and provide

financial services& collection service&advisor service etc


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F#nctions of a factor

-aintain acco#nts

)rovision of collection facilit!

Financing

Credit protection

Advisor! services'


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-ec"anism of factoring


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ADVANTAGES OF FACTORING

No time wasted on compre"ensive loan applications


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Disadvantages

Over*reliance on a factoring compan! can res#lt in

e.cessive trading and mismanagement'

Over*reliance on a factoring compan! can also res#lt in

loss of direct c#stomer relations'

Some #!ers do not li,e parties ot"er t"an t"e seller to e

involved'

Factoring is s"ort*term financing and cannot meet all

#siness needs'

Factoring occ#rs onl! w"en t"e factor is 9#ite s#re of t"e

client:s solvenc!'

Factoring companies prefer c#stomers wit" larger

#sinesses'


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F"#FA$$%&

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"ttp?@@www'indiafactoring'in@factoring'asp.

"ttp?@@www'indiafactoring'in@forfaiting'asp.
http://www.indiafactoring.in/factoring.aspxhttp://www.indiafactoring.in/forfaiting.aspxhttp://www.indiafactoring.in/forfaiting.aspxhttp://www.indiafactoring.in/factoring.aspx


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In trade finance& forfaitingis t"e financial

transaction involving t"e p#rc"ase

of receivales from e.porters ! a forfaiter' T"eforfaiter ta,es on all t"e ris,s associated wit" t"e

receivales #t earns a margin T"e forfaiter ma!

also e imm#ni>ed from certain ris,s if t"e

transaction involves pa!ment ! negotialeinstr#ment' T"e forfaiting is a transaction

involving t"e sale of one of t"e firm:s

transactions' Factoring is also a financial

transaction involving t"e p#rc"ase of financialassets& #t factoring involves t"e saleof an!

portion of a firm:s receivales'


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T"e p#rc"asing of an e.porter:s receivales

$t"e amo#nt importers owe t"e e.porter% at

a disco#nt ! pa!ing cas"' T"e forfaiter& t"ep#rc"aser of t"e receivales& ecomes t"e

entit! to w"om t"e importer is oliged to

pa! its det'


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E.porter #nder Forfeiting s#rrenders "isrig"t for claiming pa!ment for servicesrendered or goods s#pplied to Importer infavor of Forfeiter'

+an, $Forfeiter% ass#mes defa#lt ris,possessed ! t"e Importer'

Credit Sale gets converted as Cas" Sale'Forfeiting is arrangement wit"o#t reco#rse

to t"e E.porter $seller%

Operated on fi.ed rate asis $disco#nt%Finance availale #p to 445 of val#e

$#nli,e in Factoring%

Introd#ced in t"e co#ntr! in 33B'24


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E.porter is freed from credit administration'

)rovides long term credit #nli,e ot"er forms ofan, credit'

Saves on cost as ECGC Cover is eliminated'

Simple Doc#mentation as finance is availale

against ills'Forfait financer is responsile for eac" of t"e

E.porters trade transactions'


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'"** $%+"+- $%

F"#FA$$%&Commitment Fee?* )a!ale to Forfaiter !

E.porter in consideration of forfeiting services'

Disco#nt Fee?* Disco#nt rate ased on 7I+OR fort"e period concerned'

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'"/A#A$+ A%A0*$*

FACTORING FORFAITING

' Scr#tin! Service of SaleTransaction

Individ#al SaleTransaction

B' E.tent of

Finance

Upto 4*B45 Upto 445

' Reco#rse it" or it"o#tReco#rse

it"o#t Reco#rse

' Sales Administration Done Not Done

1' Term S"ort Term -edi#m Term

H' C"arge Creation Assignment Assignment

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-#A12A'3*

NON A/AI7A+I7IT( FOR S

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