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Factoring
Meaning Method Types Charges Legal
Aspects
Meaning Of Factoring
Factoring is a continuing arrangement between a financial intermediary (Factor) and a business concern (Client). Where the factor purchases the clients accounts debts either with or without recourse to the client. This relation enables the factor to control the credit given to customer.
Meaning Of Factoring
In other words we can say that it is a finance service designed to improve the clients cash flow by turning his credit sales invoices into ready cash, and control on credit sales by factor itself.
Factoring
Meaning Method Types Charges Legal
Aspects
Method Of Factoring
Client Factor
1
Customer
1.Customer Places order with Client on credit and product/ service is delivered.
Method Of Factoring
2
Client
Factor
Customer
Method Of Factoring
2 3
Client
Factor
Customer
Method Of Factoring
2 3
Client
4
Factor
Customer
Method Of Factoring
2 3
Client
4 5
Factor
Customer
Method Of Factoring
2 3 6
Client
4 5
Factor
Customer
Factoring
Meaning Method Types Charges Legal
Aspects
Types of Factoring
Recourse
Factoring Non recourse factoring Advance and Maturity Factoring Old line factoring/Full factoring Cross Border/ International Factoring Invoice Discount
Factoring
Meaning Method Types Charges Legal
Aspects
Factoring Charges
FINANCE
CHARGES are charged on prepayment made by factor in clients account. (mostly according to bank rates) FEE is minimal charge levied at monthly intervals to cover the cost of service.
SERVICE
Factoring
Meaning Method Types Charges Legal
Aspects
Legal Aspects
All
transaction attracts stamp duty for assigning factor. No duplication. All papers are given to factor The factor is assign to debts and to draw negotiable instruments.
Bill is considered Different. Takes a long time for individual bill passing. More paper work Costly includes stamp duty and bank charges Requires original documents. Grace period is less. Geographical area is limited.
retained is 50% approx. Limit is checked once in month. More paper submitted to bank otherside factor maintains reports. If debts are increased no grace period, otherway you are marked in redlist.
Forfeiting
Meaning
Forfaiting is the discounting of international trade on a 100% without recourse basis. Forfaiting converts export credit sales in cash sale. It protects exporter from all risks in selling overseas on credit. Exporter receives money after deducting some charges, therefore it is called a long term financing to importers.
Characteristics
100
% finance without any risk of exporter. Time period 60 days to 10 Year. Normally traded in $ and euro. It is tailormade in interest and credit period and so on. Importers obligation is a local bank guarantee. Value should be high ( $100000). The exporters own bank limit is full or not available.
Exporter
Importer
Forfeiter
Bank
Exporter
Importer
Forfeiter
Bank
2. Commercial Contract
Exporter
Importer
Forfeiter
Bank
3. Delivery of goods
Exporter
Importer
Forfeiter
Bank
4. Gives Guarantee
Exporter
2 3 5
Importer
Forfeiter
Bank
Exporter
2 3 5
Importer
Forfeiter
Bank
6. Delivers Documents
Exporter
2 3 5
Importer
Forfeiter
Bank
7. Makes payment
Exporter
2 3 5
Importer
Forfeiter
Bank
Exporter
2 3 5
Importer
Forfeiter
Bank
9. Repays at maturity
Exporter
2 3 5
Importer
Forfeiter
10
Bank
Charges
DISCOUNT
RATE is the rate at which the face value of a negotiable instrument is discounted . Normally over London Inter-Bank offer rate. A high country risk and longer credit period will attract higher rate. COMMITEMENT FEE is calculated on time period. HANDLING FEE is applicable for documentation and custom clarification.
Short Period Can be recourse Upto 80 % Two cost charges Sales ledger is managed Bank is not involved
For long term Only non recourse 100% Three cost charges Nothing is managed Bank is always included