64. International factoring
An international factoring agreement (financing against assignment of claims) is of a specific nature. The law to be applied to the financing agreement is determined in accordance with paragraphs. 9 paragraph 3 art. 1211 of the Civil Code of the Russian Federation in the absence of agreement of the parties law of the country of the financial agent.
Ottawa Convention on International Factoring Transactions dated May 26, 1988.
"Factor contract" - a contract concluded between one party (the supplier) and the other party (the factoring firm, hereinafter referred to as the assignee), according to which the supplier may or must assign to the assignee obligations arising from contracts for the sale of goods concluded between the supplier and his customers (debtors), with the exception of those relating to goods purchased primarily for their personal, family or household use. Wherein the assignee must undertake at least the following two responsibilities:
supplier financing, in particular a loan or early payment;
maintaining accounts for liability claims;
presentation of receivables for payment;
protection against insolvency of debtors.
The assignment of receivables must be communicated to the debtors, but the convention does not make the validity of the assignment dependent on the consent of the debtors. There is a provision on the priority of the factoring agreement (Article 6) “ An assignment of an obligation by a supplier to an assignee may be made despite any agreement between the supplier and the debtor prohibiting such assignment." True, when acceding to the Convention, a state may make a reservation about the non-application of this rule if the debtor has a commercial enterprise on its territory (Article 18).
Rights and obligations of the parties:
The debtor, having received written notice from the supplier or assignee by virtue of the authority issued by the supplier, is obliged to pay the assignee, unless he knows of another preferential right to receive this payment; if the notice sufficiently clearly identifies the payment request and the assignee; the notice concerns claims arising from a supply contract concluded before or at the time of sending the notice.
In the event that the assignee makes a claim against him for payment, a monetary claim arising from a contract for the sale of goods, the debtor may use against the assignee all the remedies arising from the contract that he could use against the supplier. However, if the debtor made a payment to the assignee, and the supplier did not deliver the goods to him or delivered the goods in violation, then he cannot demand a refund from the assignee. From this rule there is two exceptions. The debtor has the right to demand that the assignee return the amount paid if:
the assignee has not paid the corresponding amount to the supplier;
the assignee paid the amount receivable to the supplier when he knew that the supplier had not fulfilled its obligations to the debtor.
The Convention applies if all parties to factoring transactions have commercial establishments on the territory of different contracting states or if the contractual relationship is governed by the law of the contracting state. Parties may exclude the application of the Convention entirely. It is not envisaged to exclude or amend certain provisions of the Convention.
Factoring- financial commission transaction for assignment accounts receivable factoring company for the purpose of:
immediate receipt of the majority of the payment;
guarantees of full repayment of debt;
reducing account management costs.
Factoring– a set of services that a bank (or factoring company), acting as a financial agent, provides to companies working with their customers on deferred payment terms. Factoring services include not only providing the supplier and receiving money from the buyer, but also monitoring the status of the buyer's debt for supplies, reminding debtors about the due date of payment, conducting reconciliations with debtors, providing the supplier with information about the current state of receivables, as well as conducting analytics on history and current operations.
Term "factoring" comes from the Latin facre - to act, to commit ( English f astoripg). Some scientists believe that it arose only in the 30s of our century in USA, others argue that factoring is a phenomenon that appeared in middle Ages by changing the English institution of trade intermediation in trade between Britain and colonies.
The main document regulating financing against the assignment of a monetary claim at the international level is Convention "On international factoring" accepted UNIDROIT(International Institute for the Unification of Private Law), in 1988 . The Russian Federation is not currently a member. IN Russia factoring appeared only in March 1996 when Part Two was adopted Civil Code.
Article 824 of the Civil Code of the Russian Federation gives the following definition: under a factoring agreement, one party (financial agent) transfers or undertakes to transfer to the other party (client) funds against the client’s (creditor) monetary claim against a third party (debtor), and the client assigns or undertakes to assign this monetary claim to the financial agent. A monetary claim against a debtor may be assigned by a client to a financial agent also in order to ensure the fulfillment of the client’s obligations to the financial agent.
In other words, actual debts (monetary claims) can be sold creditor a certain person with available funds (financial agent), who undertakes to pay the client (creditor) the debt of a third party due to him, minus his own interests and commissions. And when the payment deadline for the specified amounts arrives, the financial agent will collect them from the debtor.
The law distinguishes between two types of monetary claims that may be the subject of assignment: payment term for which has already been due, that is, actually existing debt, and payment obligations, the payment term for which has not yet arrived (future claims).
Factoring has many advantages, the most important advantage is that the supplier who has shipped the products to the buyer can immediately receive payment from the financial agent for the shipped goods, without waiting for the settlement date with the buyer. That is, the purpose of factoring is for the client to receive Money in exchange for the right of claim assigned to a third party; in addition, the factoring agreement may have a security nature.
Factoring helps to meet the company's need for current working capital without creating excess cash. In addition, it opens up an additional opportunity to deal with the debt of small and medium-sized enterprises. A significant advantage of factoring is that factor companies provide constant and thorough accounting of the state of affairs of their clients and in every possible way prevent the occurrence of monetary debts.
The main advantages for each subject of factoring relations:
Provider who has shipped the product to the consumer, can immediately receive payment from the factor (financial agent) for the shipped goods, without waiting for the payment period with the buyer, which prevents long-term cash gaps, allows you to increase sales volume and competitiveness, providing buyers with preferential terms (deferred payment) for goods under a reliable guarantee. The use of factoring allows you to obtain a loan of up to 80-90% of the cost of the supplied goods;
Buyer receives a trade credit (the seller delivers the goods with deferred payment under guarantees of up to 3 months on average);
increases the volume of purchases; minimizes the risk of receiving low-quality goods and speeds up the turnover of funds; Banks , others credit organizations
and specialized organizations that purchase monetary claims (financial agents), using factoring, expand the range of services provided and achieve additional income. Thus, the financial agent receives not only income from the loan, a commission for early financing, but also a commission for the provision of other financial services within the framework of factoring services. Factor company. In world practice, special factor companies, as a rule, offer their clients a full range of factoring services - from accounting and control over payments and supplies to direct financing of supplies. In this case, the factoring agreement is autonomous and independent of the purchase and sale agreement.
International factoring is used in export trade ; it simplifies the receipt of cash in the course of business operations of the exporter, which is important, because during export deliveries credit is provided, often on a non-recourse basis, and in this case factoring protects against bad debts. The main types of factoring include direct and indirect.
With direct factoring There is one factor company operating – for exports in the country of the importer-seller, with which the exporter has a factoring agreement. In accordance with the direct factoring agreement, upon assignment of the right to claim the purchase price, the factor enters into direct relations with the foreign buyer. The supplier (exporter) assigns the right of claim to the assignee, and he directly enters into relations with the debtor (importer under the sales contract).
Indirect factoring involves two factor companies: an export factor and an import factor (in the country of the importer-buyer). In the case of indirect factoring, the foreign buyer pays the cost of the products he exported to the import factor in his country, which transfers this payment to the export factor, and the latter provides the agreed amount to the exporter. The assignee transfers the right of claim to another factor located in the importer’s country, and this second assignee enters into a relationship with the debtor and transfers the received payment to the first assignee. The advantage of indirect factoring is that that each of the factors has a contractual relationship with a domestic client, whose creditworthiness (creditworthiness) is known to the factor.
There are usually two main forms of factoring:
Disclosed– in operations in the open factoring mode, payment is received through a factor that has an agreement with the exporter, according to which the factor undertakes to purchase confirmed short-term debts of foreign buyers. In other words, the exporter cedes to the factor the right to demand payment for the exported goods. The buyer pays the purchase price not to the exporter, but to the factor; in this case, unconfirmed debts subject to payment are acquired by the factor with the right to regressive claims.
Undisclosed– if factoring arrangements are not disclosed to the foreign buyer;
its most common type: discounting of invoices or repurchase of invoices at a discount.
At the request of the exporter, the factor can finance the transaction in addition to services for obtaining the purchase price. In this case, it immediately pays the exporter up to 80% of the book value of the confirmed invoices and at the same time extends credit to the foreign buyer. In practical factoring, there is a problem of linking the Ottawa Convention on Factoring and the Vienna Convention on Sales Contracts. International Factors Group (IFG)
- the first international factoring association, which began its activities in 1960. The association's activities are focused on organizing international factoring operations for various companies around the world. unites 89 members from over 55 countries. IFG is currently embarking on the process of transforming itself into a global trade association, including developing its Eastern European and Asian activities through the involvement of partners and sponsors. Factors Chain International (FCI)
- a global network uniting 216 factoring companies from 62 countries, designed to promote the growth of international trade through the development of factoring. The largest factoring association in the world by number of members. Eastern European Factoring Association
was created in 2001 in order to stimulate the development of factoring in the region and ensure the interests of Eastern European factoring companies.
Under long-term or open-ended foreign economic contracts, which are characterized by regular deliveries and significant trade turnover.
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✪ What is factoring?
✪ Factoring for small and medium businesses
Subtitles Factoring is a set of services related to financing, eliminating the risk of non-payments arising from the provision of commodity credit to buyers, as well as activities related to working with accounts receivable. I will try to give the simplest example - supplying food to food chains. As a rule, manufacturers are faced with the fact that food chains want to receive goods on terms of deferred payment or trade credit. For Naturally, it is more convenient to fulfill your obligations to suppliers after they sell the goods to the end consumer. Suppliers meet trade organizations halfway, but when providing trade credit, they themselves experience certain inconveniences associated with the need to use additional volumes working capital to provide buyers with deferred payment. In order to neutralize the factor associated with the inconvenience of providing a commodity loan for the supplier, there is a financial mechanism such as factoring, which allows the supplier to receive most of the funds immediately after delivery, without waiting for payment from the retail outlet. In this case, the role of an intermediary, which allows the supplier to receive money immediately, is performed by a factoring company. The supplier provides the factoring company with shipping documents confirming the fact of delivery and receives, as a rule, 90% of the amount of the shipment. Factoring in its classical sense is a set of activities that contains several components. This service is at the intersection of banking services - through financing; insurance – by eliminating the risk of non-payment for supplies; and collection agencies - through work on receivables management.. This event can be considered the birth of factoring technologies for the Russian domestic market. Before the 1998 crisis, the market developed slowly, and after the crisis it received a second wind, since from 1999 to 2002 several players appeared who decided to seriously develop and promote this service. The traditional pioneer of the factoring market in this regard is the bank, which was then called the NIKoil Investment Banking Group, within which the first post-crisis division engaged in factoring was created. Russian market factoring has certain specifics compared to the standards that are accepted in developed markets. We observe that most of what is on the market as an offer for factoring services in our country is not factoring. There is a very incorrect interpretation, mainly by banks, of the essence of factoring operations. What is often called factoring is actually lending against receivables. The definition of factoring is very clearly stated in International Convention UNIDROIT. This is a service that provides at least three services from the following four points: financing against the assignment of a monetary claim, maintaining accounting
for the supplier, eliminating the risk of non-payment and working with accounts receivable.
Today, the product offering on the factoring market in the Russian Federation includes a service that, by Western standards, is called invoice discounting. The most adequate translation of this term into Russian from a financial point of view is “lending secured by receivables.” In reality, factoring is a more complex service. A different set of product solutions within factoring allows us to talk about a broader industry; in Europe, in particular, it is called Assets Based Lending, but we prefer to call it “Financial Logistics”. This is an industry capable of serving the entire commodity chain, starting from the moment of receipt of raw materials and the purchase of these raw materials by the manufacturer and ending with the stage of product readiness when it reaches the final consumer.
- Participants in international factoring operations
- Supplier of goods (exporter) who has monetary claims against the buyer of goods (importer)
- The buyer of goods (importer) who has monetary obligations to the supplier.
The main purpose of the factor (factoring company) is to provide credit to suppliers by purchasing their short-term receivables. The factor pays the supplier the cost of delivery minus a certain percentage (from 10 to 40%), which depends on the terms of the international factoring agreement. In accordance with the terms of the international factoring agreement, the supplier transfers to the factor all the necessary commodity and monetary documents necessary to receive money for the delivered goods (services) from the debtor (buyer of the goods or services). After the buyer pays for the products, the factor makes a final payment to the supplier for the factoring service provided, deducting from the amount received from the buyer of the goods the initially paid amount, interest on the loan provided and commission payments for services rendered.
Types of international factoring
There are one-factor and two-factor models of international factoring.
Single-factor model of international factoring
The one-factor model provides that the factor company and the client company are residents of the same state. This model used primarily in export operations. This export factoring provides for the financing of exports against the assignment of a monetary claim, in which the seller and the export factor are located in the territory of one country, and the buyer is a resident of another state.
The export factor is a bank or a specialized factoring company that provides financial services to the exporter (supplier). The functions of the export factor include financing the exporter in full or in part of the proceeds under the export contract. In addition, he can carry out international payments, insure the risk of non-payment on the part of the importer (non-resident buyer), as well as receive proceeds from the non-resident buyer.
Two-factor model of international factoring
With a two-factor model, the functions of international factoring are divided between two factor companies (export factor and import factor), which are residents of different countries. The import factor is a bank or a specialized factoring company that provides international factoring services in the country of the non-resident buyer. The import factor is present in the implementation of the two-factor model of international factoring. The functions of an import factor may include making international payments under foreign trade contracts, covering the risk of non-payment on the part of a non-resident buyer, receiving revenue from a non-resident buyer and paying the importer's debt to the export factor in the event of non-payment by the importer.
Advantages of using international factoring
The main advantages of using international factoring for exporters and importers are:
- International factoring allows you to increase Cash Flow.
- International factoring allows buyers to attract the best suppliers, as the payment guarantee increases.
- Long deferred payments help increase Buyers' available funds.
- When the product sales period increases, the buyer receives a commodity loan on favorable terms.
International factoring in Russia
Exists recently. Services are mainly provided by international banks and international organizations with a wide branch network all over the world. These organizations and banks are members of Factors Chain International (FCI) and/or International Factors Group (IFG), which promote the growth of international trade through factoring.
IN last years The use of factoring is growing rapidly around the world. For example, according to the international factoring association International Factors Group S.C., in 1999 the global turnover of factoring operations increased by more than 40% compared to 1998. In the structure of factoring operations, 8% was accounted for by international factoring.
According to the UNIDROIT Convention on International Factoring 1988, “Factoring Agreement” means an agreement entered into between one party (supplier) and another party (factor), whereby:
A) the supplier assigns to the factor receivables arising from an agreement for the sale of goods (services) concluded between the supplier and his customer (debtor), other than that arising from the sale of goods purchased primarily for personal, family or household needs;
B) the factor performs at least two functions:
Supplier financing, including loans and early payments;
- maintaining accounts (keeping a ledger) related to accounts receivable;
- collection of accounts receivable.
- protection against errors when repaying debts by debtors:
C) notice of the assignment of receivables is given to the debtors.
Parties of international factoring:
1. Supplier (lender).
2. Debtor (debtor) - buyer of goods (services).
3. Factor (bank or specialized factoring organization).
In the relations of the parties under a factoring contract:
A) the provision of a factoring agreement on the assignment of existing or future receivables cannot be considered legally invalid due to the fact that the agreement does not stipulate each debt separately, if at the conclusion of the agreement or when such debt arises, its relationship to the agreement can be established.
B) the provision of the factoring agreement under which future receivables are assigned has the legal effect of transferring the receivables to the factor when they arise without any need to draw up a new deed of assignment.
The debtor is obliged to repay the debt to the factor if the debtor does not know any other person who has a priority right to receive the debt, and written notice of the assignment:
A) is given to the debtor by the supplier or by a factor with the authority of the supplier;
b) reasonably determines the receivables that have been assigned, as well as the factors to whom or to whose account the debtor must make payment;
c) relates to receivables arising from an agreement for the sale of goods entered into on or before receipt of the notice.
When a factor files a claim against a debtor for repayment of debt arising from an agreement for the sale of goods, the debtor may resort to all methods judicial protection in accordance with such agreement, which the debtor could have benefited from if such a claim had been made by the supplier.
Types of factoring:
1. Open factoring.
2. Hidden factoring.
Open factoring is a transaction in which the supplier transfers to the factor the legal right to demand payment from the debtor (buyer). In this case, the factor becomes a creditor to the former debtor. The responsibility for delivery remains with the supplier. The supplier and the factor send a notice to the debtor about the transfer of the right of claim to the factor.
Hidden factoring is a transaction in which the supplier transfers to the factor the rights to future proceeds from the sale of goods. The supplier remains a party to the transaction with the debtor. In this case, the debtor is not notified of the conclusion of the factoring agreement. The supplier instructs the factor, which acts on its behalf, to collect the debt.
If, under a factoring agreement, the creditor is financed by purchasing a monetary claim from him by the factor, then the factor acquires the right to all amounts of money that he will receive from the debtor as a result of the fulfillment of the claim.
If the assignment of a monetary claim to a factor is carried out in order to ensure the fulfillment of the creditor’s obligation and otherwise is not provided for in the factoring agreement, the factor is obliged to submit a report to the creditor and transfer to him an amount of money exceeding the amount of the creditor’s debt secured by the assignment of the claim.
If the factor approaches the debtor with a demand to make payment, the debtor has the right to present for offset his monetary claims based on an agreement with the creditor, which he had at the time he received notification of the assignment of the monetary claim to the factor.
The creditor is responsible to the factor for the validity of the monetary claim for which the amount of money is provided.
A monetary claim that is the subject of an assignment is recognized as valid if the creditor has the right to transfer the claim and at the time of assignment he does not know the circumstances due to which the debtor has the right not to fulfill it.
If the funds received by the factor for the assigned monetary claim turn out to be less than the amount of the creditor's debt to repay the amount of the monetary obligation, the creditor remains liable to the factor for the balance of the debt if he issued a guarantee for the debtor.
The factor has the right to return to the creditor claims not paid by the debtor on time, and to recover from the creditor the sums of money paid to him and the damage caused to the factor by the debtor’s failure to fulfill his obligations under the factoring agreement with the right of recourse.
The main advantages of factoring:
Allows suppliers (exporters) to expand the volume of supplies by providing deferred payment to importers;
- full insurance of the risk of non-payment;
- acceleration of the terms of receipt of payment by the exporter compared to the letter of credit form of payment;
-increases the exporter’s working capital, etc.
International forfeiting is a type of international factoring. This is the acquisition by one party (the forfaiter) from the other party (the holder of the bill) of a promissory note or bill of exchange for which the payment period has not come. Typically, forfaiting operations are carried out with bills of exchange issued by banks or specialized forfaiting organizations that have a stable position in the market.
Factoring is financial instrument, allowing you to work on international transactions with deferred payment. At the same time, the risks that often arise in such contracts are minimal. And this is very important in the realities of the modern unstable economy.
International factoring is a variant of a factoring operation that provides settlements for the supply of goods and services with deferred payment between the seller and the buyer, if they are representatives of different countries.
If international partners are characterized by large trade turnover and regular deliveries, which often happens with long-term and open-ended foreign economic contracts, it is impossible to do without a range of financial services.
Parties of international factoring
- Three types of participants interact in this operation: The company-factor, sometimes it is simply called the Factor. This role usually involves a bank or other finance company
- , redeeming a monetary claim. To put it simply, the Factor’s main task is to pay the supplier a portion of the importer’s receivables. If factoring is two-factor, then there will be two factoring organizations.
- Supplier of goods (exporter). Produces and/or sells services or goods. It is in his interest to receive payment as quickly as possible.
Buyer of the goods (importer). Has monetary obligations to the supplier and is interested in delaying payment for the goods as much as possible.
The main task of factoring
International factoring creates a compromise between the interests of the supplier and the buyer in the payment procedure. Both of them achieve their goals due to the fact that the neutral party - the Factor company - fills the “gap” in the trading operation with its own money.
- This is why factoring services are becoming increasingly popular. They are indispensable in the following cases: Between partners there is still no experience of respectable business relations
- , there is no 100% trust in each other.
- The laws of the countries where the importer and exporter are residents have significant differences. Therefore, concluding a contract involves the risk of mutual non-compliance with the agreement.
- The painstaking function of managing accounts receivable is delegated to an outside firm.
Example of international factoring
On July 15, Transformer Plant LLC (supplier) enters into a contract for the supply of goods with the Russian Trading Company (buyer) in the amount of 500,000 rubles. According to the documents, the products must be paid for by July 25.
In order to receive money as quickly as possible, on July 20, the Transformer Plant enters into a factoring agreement with the commercial bank Ilteza (Factor), thereby transferring to it its right of monetary claim against the Russian Trading Company.
On July 21, Ilteza transfers 70% of the receivables - 350,000 rubles - to the client’s account.
July 26 The Russian trading company transfers to the Ilteza CB the amount of debt - 500,000 rubles. From this amount, the Factor withholds the remuneration due to him, and transfers the remaining part to the Transformer Plant.
International factoring in Russia
In our country this tool international trade has just begun to gain momentum. However, it is worth taking a closer look at it, since such a service is beneficial and convenient for all participants in the Contract. Let's take a closer look.
Buyer: receives trade credit; purchased at reduced prices; replenishes working capital without pledging property; achieves higher turnover, resulting in increased profitability; reduces taxable profit due to the inclusion of the cost of services in non-sales costs and in the cost price.
Provider: receives most of the payment in the first days after shipment of the goods; increases sales volumes; reduces the risk of non-payment; receives professional advice and information and analytical support from Factor.
It is worth saying that the Factor also does not remain at a loss. The cost of factoring services is always calculated differently and consists of several different commissions: for registering a monetary claim, directly for factoring services, for providing funds, for covering the risk of non-payment on the part of the Buyer, etc. Also, at the request of the Factor, other payments can be established.
In conclusion, we note that you can get acquainted with the legislative factoring market in more detail on the website
In accordance with the Convention on International Factoring, adopted in 1988 by the International Institute for the Unification of Private Law, an operation is considered factoring if it satisfies at least two of four criteria: 1) the presence of credit in the form of prepayment of debt claims; 2) maintaining accounting records for the supplier, primarily accounting for sales; 3) collection of his debt; 4) insurance of the supplier against credit risk. At the same time, in a number of countries, factoring still includes the accounting of invoices - an operation that satisfies only one, the first of these criteria.
When exporting products, the exporter's credit risk increases significantly (due to difficulties in assessing the creditworthiness of potential foreign customers; providing commercial credit for a longer period, taking into account the time required to deliver goods to foreign markets; and also due to factors such as political instability in the country importer, low level her economic development etc.). In addition, since an agreement on foreign trade factoring may provide for the use of two or more currencies, currency risk also arises - the danger of currency losses due to changes in the exchange rate of a foreign currency in relation to the national one. Due to the increase in the degree of risk, the factor imposes more stringent requirements on the exporter than on suppliers in the domestic market. When servicing an exporter, a factor, as a rule, enters into an agreement with a factor of the importing country and transfers to it part of the scope of work. Thus, the participants in international factoring transactions are:
- - supplier, buyer;
- - import factor (bank or import factor firm) and export factor (bank or export factor firm).
In a commercial bank, international factoring operations (IFO) are carried out by a special factoring unit (FD). To ensure effective interaction between both import factors, suppliers and buyers, the work of the FP must be based on rational technology that takes into account the rules of behavior of the import factor and export factor in the environment of networks of international factoring associations and all possible scenarios for the behavior of the FP.
Recently, international factoring operations promising big income, many large Russian banks became interested. Special meaning acquires factoring in international trade operations in the light of the “Instructions on the procedure for carrying out exchange control over the validity of payments in foreign currency for imported goods, which came into force on January 1, 1996.
IN international trade Four factoring models are used:
- - two-factor;
- - direct import;
- - direct export;
- - “back-to-back” (back-to-back).
The two-factor model allows the division of functions and risks between the import factor located in the importer’s country and the export factor located in the exporter’s country. The main goal of this model is to provide financing up to 100% and reduce administrative overhead costs.
The classic two-factor design consists of the following stages:
- 3. financing;
- 4. payment.
At the first stage, the exporter requests from his export factor the amount to be secured. The export factor requests the required limit from the import factor. The import factor checks the importer and provides guarantees to the export factor. Next, the export factor gives the exporter permission to limit, after which the documents are sold.
In the second stage, the exporter supplies the good or service and transmits a copy of the invoice to the export factor, who sends it to the import factor. Simultaneously with the goods, the exporter sends an invoice to the importer with notes on the assignment.
At the third stage, after delivery of the goods or services, the export factor finances the exporter within 70-90% of the full initial invoice price.
At the fourth stage, the importer makes a 100% payment to the import factor, and he transfers the received amount to the export factor. Finally, the export factor transfers to the exporter the unfinanced part of the requirements (10% - 30%) minus the cost of factoring services.
If payment deadlines are not met, the import factor sends warning reminders to the importer. If after two or three reminders the claims are not paid, the import factor takes the necessary legal measures.
The import factor assumes the risks of the importer, checks his solvency and guarantees the export factor payment for the goods supplied by the exporter. If the importer does not pay for the goods, the import factor pays for it.
The export factor assumes the risks associated with the supply of goods by the exporter and, if necessary, credits the exporter without waiting for payment to be received from the importer or import factor.
The advantage of two-factor factoring is that for the company serving the importer, the debt requirements are internal, and not external, as for the exporter factor. At the same time, it is quite cumbersome and involves high costs for the parties.
The second model of international factoring is direct import factoring.
His the main objective-- ensuring payments. The direct import factoring scheme consists of the following stages:
- 1. limit request / risk provision;
- 2. delivery / distribution of invoices;
- 3. payment.
Direct import factoring makes sense only when exports are made to one or two countries. If the exporter has counterparties in many countries, then concluding one agreement with a factor of his own country will be more convenient than a large number of direct agreements with factors of other countries.
In the case of direct import factoring, the factor - a company in the importing country - enters into an agreement with the exporter on the assignment of debt claims in this country to it, insuring credit risk, accounting and collection of claims that are internal to the factor. At the same time, lending to a foreign exporter in a currency foreign to the factor is quite difficult, and the provision for advance payment is extremely rare in such agreements.
Thus, direct import factoring may be of interest to firms that do not need immediate financing for assigned claims.
The third model of international factoring operations is direct export factoring. Direct export factoring does not require connecting a factor in the importer's country. The main stages of direct export factoring are as follows:
- 1. limit request/risk provision;
- 2. delivery/distribution of invoices;
- 3. financing;
- 4. payment.
At the same time, the factor faces significant difficulties in assessing the creditworthiness of foreign clients and collecting claims.
To assess the risk or for reinsurance, the export factor can connect with a credit insurance company in the importer’s country or insure itself with guarantees from the relevant government organization. When using this factoring option you can get profitable terms financing of export supplies with coverage by a state insurance company.
The first three models of international factoring operations do not provide for financing the requirements of concerns. This function is performed by back-to-back factoring. The implementation of a transaction using this technology is similar to a combination of a two-factor scheme and conventional internal factoring.
A feature of foreign trade factoring in general is its always open nature, as well as the absence of the right of recourse to the export supplier. The latter is due to the fact that the basis of factoring services for an exporter is usually the protection of the exporter from credit risk. Servicing the entire turnover of goods, which is provided for in operations within the country, is much less common in factoring services for foreign trade operations; factors in most cases specialize in servicing the market of one country or the market of a specific product.
International factoring allows the importer to receive goods on an ongoing basis with a deferred payment (usually up to three months). The obligation to pay rests with the importer after acceptance of the goods delivery in terms of quality and quantity. Factoring opens up unique opportunities for enterprises importing goods to Russia, being nothing more than a trade credit.
Upon receiving international “factor” status, a Russian bank becomes a guarantor of business security and reliability for foreign factor firms, taking on the obligation to pay the foreign company for goods shipped to Russia. When importing goods and services into Russia, the factoring transaction is carried out in several stages.
At the first stage, the Russian importer and foreign exporter agree on the terms of work for factoring and enter into a contract.
At the second stage, the foreign exporter, having received confirmation from the export factor from the factor bank about the reliability of the Russian importer, ships the goods or provides services.
At the third stage, the foreign exporter assigns the accounts to the factor firm. If a foreign exporter needs replenishment working capital, then at the fourth stage, the factor firm pays the exporter in advance the cost of the goods or services provided.
At the fifth stage, the Russian importer pays the cost of the goods or services provided when the payment deadline arrives.
At the sixth stage, the Russian factor bank, after receiving funds from the importer, pays the foreign factor firm (and in the event of non-payment by the importer when the payment deadline arrives, pays from its own funds). The main clients for factoring are Russian importers who are forced to make an advance payment, open a letter of credit or provide payment guarantees for the goods supplied or services provided. For such importers, factoring is a way to avoid expensive loans and increase the efficiency of using their own.
Factoring is beneficial for both the supplier, the buyer, and the factor. With its help, the supplier can do the following: increase sales volume, the number of buyers and competitiveness by providing buyers with preferential terms for payment for goods (deferment) under a reliable guarantee; receive a loan of up to 90% of the cost of the supplied goods, which will speed up the turnover of funds.
The buyer can:
- - receive a trade credit (the seller delivers the goods with deferred payment
- - guaranteed for an average of 3 months);
- - avoid the risk of receiving low-quality goods;
- - increase the volume of purchases;
- - improve competitiveness, accelerate the turnover of funds.
The main income of the factor are:
- - interest on the loan;
- - service fee.
Commercial banks, developing factoring operations, supplement them with elements of accounting, information, advertising, sales, legal, insurance and other customer services. This allows you to expand the circle of bank clients, strengthen communication with them, and increase the bank’s profit by expanding operations.
Thus, we can highlight the main economic advantages of factoring:
- - increasing liquidity, profitability and profit;
- - turning accounts receivable into cash;
- - the opportunity to receive a discount on immediate payment of all supplier invoices;
- - independence and freedom from compliance with payment deadlines on the part of debtors;
- - possibility of expanding turnover volumes;
- - increasing profitability;
- - saving equity capital;
- - improvement of financial planning.
Experience foreign countries and a number of advantages of export factoring compared to other forms of payment in international trade allow us to predict an increase in its popularity among Russian exporters. This is due, firstly, to the fact that export factoring is carried out by factors with very different nationalities, members of one or another association of factoring companies. Secondly, the supplier company, having received most of the amount for the delivered goods, can immediately put it into circulation immediately after shipment. Third, the factor will notify the exporter of the financial situation of the potential buyer. Thus, the exporting enterprise has the opportunity, without the risk of wasting time and money, to expand production for a specific importer of a particular type of product. Since factoring significantly helps in collecting payments on obligations commercial activities, it is especially relevant in conditions of large accounts receivable, paralyzing the system non-cash payments our country.
Calculate the lease payment schedule using the form below (Table 1), if the following data is available:
Table 1.
The date of the first payment is January 20, 2001. Take into account the fact that leasing payments regarding the lessor’s investment expenses are written off in equal shares as a percentage of the contract value of the leased object, and its value is determined by the following formula:
where A (%) - depreciation of the leased object during the period of validity of the contract, %; K - number of lease payments.
The landlord's income is determined as follows:
where Pd - lease payment in terms of income; OD - the cost of the principal debt, which is reduced monthly by the amount of accrued depreciation; LS% - leasing rate, %, D - number of days in a month.
We have depreciation of the object for the period of validity of the contract A (%) = 75%, and at the same time the number of leasing payments K = 10. This means that leasing payments regarding the lessor’s investment expenses are written off in equal shares in the amount of 75/10 = 7.5% of the contract value of the leased asset.
We summarize the calculations in Table 2.
table 2
|
Cost of the principal debt, rub. (OD) |
Leasing payments |
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payment date |
Regarding the landlord's investment costs |
Landlord's income |
gr.5= gr.3+gr.4 |
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