Brief Note on Domestic and International Factoring

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Brief Note on Factoring
1.1 Transingo Factoring Process
1.2 Steps in Transingo Process
1. Importer & exporter agree on commercial terms
2. Importer & exporter inputs desired payment terms into Transingo system
3. Transingo receives credit insurance limit (for importer)
4. Traningo provides a quote for credit & escrow services to customer
5. Key contractual terms are defined in the Transingo system
6. All relevant transaction documents uploaded into Transingo system
7. Importer transfers down-payments to exporter and provides Transingo with swift
7. Exporter prepares goods for shipping and uploads invoice & packing list for approval
8. Importer approve invoice
9. Transingo transfers money from its Nostro account to trustee account and provides exporter with a documents showing all
proceeds are held in trust
10. Exporter provides invoice assignment documents to Transingo
11. Transingo factors the invoice. Factoring proceeds are transferred to Transingo nostro account
12. Once all shipment terms are met, Transingo transfers money to exporter from nostro
13. Trustee releases funds back to Transingo nostro against the full exporter swift
14. Importer pays for the goods to factoring agent according to the payment terms
1.3 Required following clarifications from Transigo
 What kind of organizations can take the role of trustee and why trustee are important in the process? What roles they play?
 Transingo receives credit insurance limit from whom? Is it insurance firms or some other party?
 Does Transingo take any kind of guarantee against the credit facility?
 Does Transingo do credit profiling of customers before providing credit facility?
2.1 Types of factoring firms in India
 On the basis of recourse facilities, factoring firms can be classified into three categories-
Factoring firm with recourse- Factor has legal recourseto the seller,in casedebtor fails to pay on maturity. Hence factor
work as collection agent and doesn’t cover the risk incase debtor fails to repay
Factoring firm without recourse- Factor does not has legal recourse to the seller, in case debtor default and bear the
credit risk in case of buyer’s inability to pay
Factoring firm without recourse- Factor has limited legal recourse to the seller in case debtor default
 On the basis of operation, factoring firms can be classified into two categories-
Domestic factoring- Factoringfirms who are involved only in financingof receivablewithin the country and involves only
one factor
Exporter Importer
TransingoTrustee
Transingo Nostro
A/c
1
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3
5 6
7
2
8
9
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International factoring- Factoring firms who are involved in cross border sales transactions also known as import-export
factoring depending on the location of factoring customer. In this factor either directly handle the transactions or uses a
cooperation partner in other country
 On the basis of disclosure of factor to debtors, factoring firms can be classified into two categories-
Disclosed factoring- Under this factoringdebtor is informed aboutthe assignmentof debt under the factor and debtor makes
repayment to factor only
Undisclosed factoring- Under this factoringdebtor is notinformed about the assignmentof debt under the factor and makes
repayments to seller
3.1 International factoring
International factoring is of two types- 1. Two factors (Export-import factoring) 2. One factor (direct export factoring)
Export-Import Factoring Direct export factoring
3.2 Import funding in India
Three methods are used in India to fund import-
1. Using export-import factoring process
 Importer organization shares its financial details and credit ratings with factor
 Import factor organization do the credit appraisal of importer usingits internal guidelines and principal and accordingly take
decision on providing the line of credit or not
 Importer provides security against the line of credit and sign agreement with import factor
 Importer successfully received the material and repay its outstanding to import factor
 Importer transfer amount to export factor
2. Using financial institutions (banks) to finance import
 Importer approaches financial institutions to availing various credit instruments to import supplies
 Import organization share financial details and provide securities to FIs
 FIs do the creditappraisal of importer usinginternal guidelines and principalsand accordingly ta kedecision on providingthe
credit line
 FIs transfers the bill amount to exporters (exporter factor or foreign FIs) once importer received material
 Importer repays the loan to FIs in or at agreed due date
3. Directly making arrangement with export factors
 Importer directly come into contact with export’s factor for payments or availing credit
 Export factors evaluates the case using inter guidelines and principals make decision accordingly
 Importer pays to foreign factors through FIs
Exporter
Exporter’s Factor
Importer
Importer’s Factor
5. Documents
3. Deliversgoods
1. Placesorder
6. Payments
7. Payments
2. Approval
2.Approval
5.Prepayments
8.Balance
4.Documents
Exporter
Exporter’s Factor
Importer
Credit Insurer
3. Deliversgoods
1. Places order
4.Prepayments
6.Balancepayment
2.Documents
4. Invoice/turnover detail
5. Overdue info/Raise claim
6. Claim payment