Factoring and ing Ppt

8/2/2019 Factoring and ing Ppt

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FACTORING & FORFAITING

Factoring is of recent origin in Indian Context.Kalyana Sundaram Committee recommendedintroduction of factoring in 1989.

Banking Regulation Act, 1949, was amended in 1991for Banks setting up factoring services.

SBI/Canara Bank have set up their FactoringSubsidiaries:-

SBI Factors Ltd., (April, 1991) CanBank Factors Ltd., (August, 1991).

RBI has permitted Banks to undertake factoringservices through subsidiaries.



WHAT IS FACTORING ?

Factoring is the Sale of Book Debts by a firm(Client) to a financial institution (Factor) on theunderstanding that the Factor will pay for theBook Debts as and when they are collected or on aguaranteed payment date.

Normally, theFactor makes a part payment(usually upto 80%) immediately after the debts

are purchased thereby providing immediateliquidity to the Client.



So, a Factor is,

a) A Financial Intermediaryb) That buys invoices of a manufacturer or a trader,

at a discount, andc) Takes responsibility for collection of payments.

The parties involved in the factoring transaction are:-

a) Supplier or Seller (Client)

b) Buyer or Debtor (Customer)c) Financial Intermediary (Factor)



SERVICES OFFERED BY AFACTOR

1. Follow-up and collection of Receivables fromClients.

2. Purchase of Receivables with or withoutrecourse.

3. Help in getting information and credit line oncustomers (credit protection)

4. Sorting out disputes, if any, due to his

relationship with Buyer & Seller.



5). Customer remits the amount due to the Factor.

6). Factor makes the final payment to the Client whenthe account is collected or on the guaranteed paymentdate.



MECHANICS OF FACTORING

1). The customer place an order with the client on thecredit base, client deliver the goods or services tothe customer and send invoice also.

2). The Client (Seller) submits invoice copy only withDelivery Challan showing receipt of goods by buyer,to the Factor.

3). The Factor makes 80% payment on behalf ofcustomer to the client. This is also called FactorReserve.



4). The factor send statement to customer for follow up.

5). Customer makes full payment to the factor.

6). The factor makes balance 20% payment to client uponthe realization date.



TYPES OF FACTORING Recourse Factoring

Non-recourse Factoring

Maturity Factoring

Cross-border Factoring

Oldline Factoring



RECOURSE FACTORINGUpto 75% to 85% of the Invoice Receivable is

factored.

In case of default or non payment by a tradedebtor, the client refunds the amount to the

factor.

Credit Risk is with the Client as this type offactoring does not including bad debt protection.

In India, factoring is done with recourse.



NON-RECOURSE FACTORING

Factor purchases Receivables on the condition thatthe Factor has no recourse to the Client, if thedebt turns out to be non-recoverable.

Credit risk is with the Factor.

Higher commission is charged.

In USA/UK, factoring is commonly done withoutrecourse.



MATURITY FACTORING

Factor does not make any advance payment to theClient.

Pays on guaranteed payment date or on collection

of Receivables.

Nominal Commission is charged.

No risk to Factor.



CROSS - BORDER FACTORING

It is similar to domestic factoring except that thereare four parties, viz.,a) Exporter,b) Export Factor,c) Import Factor, andd) Importer.

It is also called two-factor system of factoring.

Exporter (Client) enters into factoring arrangementwith Export Factor in his country and assigns tohim export receivables.



Export Factor enters into arrangement with ImportFactor and has arrangement for credit evaluation &collection of payment for an agreed fee.

Notation is made on the invoice that importer has tomake payment to the Import Factor.

Import Factor collects payment and remits to ExportFactor who passes on the proceeds to the Exporterafter adjusting his advance, if any.

Where foreign currency is involved, Factor covers

exchange risk also.



OLD LINE FACTORING

Combination of non-recourse factoring and advancedfactoring.

It provides an entire spectrum of services that is

collection, credit protection, sales ledger and shortterm finance etc…



1). To the client,

- The credit sales are immediately converted intoready cash as factor makes a payment around 80%.

-Cash realized can be used for the productioncycle.

- The client is free from the tension of monitoringhis sales ledger and so he can concentrate onproduction and marketing.



2). To the customers,

- Customers get adequate credit period.

- Customers save on bank charges and expenses.

- The customer has not to furnish any documents, asthey are furnished with periodical statements ofoutstanding invoices by the factor.

3). To the Banks,

- Banks can get financial charges for its service.

Factoring and ing Ppt

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