This document provides an overview of factoring and forfaiting. It defines factoring as the sale of book debts by a firm to a financial institution, with the factor paying for the debts as they are collected. Forfaiting is similar but deals specifically with receivables relating to deferred payment exports. The key parties in each transaction and services provided are described. The document also compares factoring to bills discounting and forfaiting, outlines the various types of factoring, and summarizes the mechanics and stages involved in domestic and export factoring as well as forfaiting transactions.
The document provides information about factoring and HSBC's factoring services. It defines factoring as the financial transaction where a business sells its accounts receivable to a third party called a factor. It then discusses the key parties and processes involved in factoring transactions, as well as the types of factoring services offered by HSBC, including domestic and international factoring. HSBC aims to be an active partner in managing customers' supply chains and receivables through these factoring products.
The document discusses factoring and forfaiting. It defines factoring as the sale of book debts by a firm to a financial institution, where the factor pays for the debts as they are collected and provides immediate liquidity to the client. Forfaiting is described as the purchase by a financial intermediary of the export receivables of an exporter without recourse to the exporter, dealing specifically with receivables relating to deferred payment exports. The key differences between factoring, bill discounting, and forfaiting are outlined.
Forfaiting is a mechanism where an exporter's rights to export receivables such as letters of credit or bills of exchange are purchased by a financial intermediary called a forfaiter without recourse to the exporter. This converts the exporter's credit sale into a cash sale, absolving the exporter of political or conversion risks while providing up to 100% financing without recourse. The key parties involved are the exporter, importer, forfaiting agency which is typically the exporter's bank, the importer's guaranteeing bank, and domestic export-import banks. Forfaiting provides liquidity to exporters, fixes the financing rate, and keeps the transactions confidential.
Merchant banking provides capital to companies through equity investment rather than loans. It offers advisory services on corporate matters and investment banking services like mergers and acquisitions. Merchant banking started in Italy and France in the 17th-18th centuries and modern merchant banking began in London by financing foreign trade through bill acceptance. In India, merchant banking was introduced by Grindlays Bank in 1967 and other Indian and foreign banks subsequently established merchant banking divisions. Merchant banks invest their own capital and provide services primarily to large corporations and high-net-worth individuals rather than retail banking.
The document discusses the roles of merchant banks and underwriters in India. It begins by providing a brief history of merchant banking, noting it started in Italy and later spread to other European countries and the US. It then outlines some of the key functions of merchant banks, such as providing commercial banking services, long-term loans, and underwriting stocks. Next, it discusses the underwriting process, including different types of underwriting agreements and regulations around underwriting in India. It concludes by emphasizing the importance of underwriters and merchant banks in facilitating capital raising and protecting investor interests.
This document provides an overview of factoring and forfaiting processes used in international trade finance. It discusses that factoring involves the sale of book debts or invoices by an exporter to a factor, who provides financing and collects payment. Forfaiting involves the purchase of export receivables by a financial intermediary without recourse to the exporter. The key differences are that factoring may involve credit risk transfer, while forfaiting is done on a non-recourse basis. Both tools help companies raise working capital by discounting outstanding receivables. The document outlines the various parties, documents, costs and applicable regulations for these financial services.
Forfeiting is the process of purchasing a company's export receivables at a discount for cash. It involves an exporter selling its receivables from export sales to a forfeiting company, which then receives payment from the importer. This converts deferred export payments into immediate cash for the exporter, while absorbing the risks normally borne by exporters such as political and currency risk. Forfeiting provides exporters with liquidity and freedoms them from credit administration and risk, while absorbing the importer's risk for the forfeiting company in exchange for a discount on the receivables.
This document provides an overview of factoring presented by Pawan Singh Raikhola. It defines factoring as the financial transaction where a business sells its account receivables to a third party called a factor at a discounted rate. There are typically three parties involved - the factor, client/seller, and buyer/customer. The presentation describes the key features and types of factoring such as full factoring, recourse vs. non-recourse, and domestic vs. international factoring. It also outlines the steps in the factoring process and provides statistics on the factoring industry in India. Forfaiting is discussed as a similar process used to finance export receivables over medium terms of 1-5 years
The document provides information about factoring and HSBC's factoring services. It defines factoring as the financial transaction where a business sells its accounts receivable to a third party called a factor. It then discusses the key parties and processes involved in factoring transactions, as well as the types of factoring services offered by HSBC, including domestic and international factoring. HSBC aims to be an active partner in managing customers' supply chains and receivables through these factoring products.
The document discusses factoring and forfaiting. It defines factoring as the sale of book debts by a firm to a financial institution, where the factor pays for the debts as they are collected and provides immediate liquidity to the client. Forfaiting is described as the purchase by a financial intermediary of the export receivables of an exporter without recourse to the exporter, dealing specifically with receivables relating to deferred payment exports. The key differences between factoring, bill discounting, and forfaiting are outlined.
Forfaiting is a mechanism where an exporter's rights to export receivables such as letters of credit or bills of exchange are purchased by a financial intermediary called a forfaiter without recourse to the exporter. This converts the exporter's credit sale into a cash sale, absolving the exporter of political or conversion risks while providing up to 100% financing without recourse. The key parties involved are the exporter, importer, forfaiting agency which is typically the exporter's bank, the importer's guaranteeing bank, and domestic export-import banks. Forfaiting provides liquidity to exporters, fixes the financing rate, and keeps the transactions confidential.
Merchant banking provides capital to companies through equity investment rather than loans. It offers advisory services on corporate matters and investment banking services like mergers and acquisitions. Merchant banking started in Italy and France in the 17th-18th centuries and modern merchant banking began in London by financing foreign trade through bill acceptance. In India, merchant banking was introduced by Grindlays Bank in 1967 and other Indian and foreign banks subsequently established merchant banking divisions. Merchant banks invest their own capital and provide services primarily to large corporations and high-net-worth individuals rather than retail banking.
The document discusses the roles of merchant banks and underwriters in India. It begins by providing a brief history of merchant banking, noting it started in Italy and later spread to other European countries and the US. It then outlines some of the key functions of merchant banks, such as providing commercial banking services, long-term loans, and underwriting stocks. Next, it discusses the underwriting process, including different types of underwriting agreements and regulations around underwriting in India. It concludes by emphasizing the importance of underwriters and merchant banks in facilitating capital raising and protecting investor interests.
This document provides an overview of factoring and forfaiting processes used in international trade finance. It discusses that factoring involves the sale of book debts or invoices by an exporter to a factor, who provides financing and collects payment. Forfaiting involves the purchase of export receivables by a financial intermediary without recourse to the exporter. The key differences are that factoring may involve credit risk transfer, while forfaiting is done on a non-recourse basis. Both tools help companies raise working capital by discounting outstanding receivables. The document outlines the various parties, documents, costs and applicable regulations for these financial services.
Forfeiting is the process of purchasing a company's export receivables at a discount for cash. It involves an exporter selling its receivables from export sales to a forfeiting company, which then receives payment from the importer. This converts deferred export payments into immediate cash for the exporter, while absorbing the risks normally borne by exporters such as political and currency risk. Forfeiting provides exporters with liquidity and freedoms them from credit administration and risk, while absorbing the importer's risk for the forfeiting company in exchange for a discount on the receivables.
This document provides an overview of factoring presented by Pawan Singh Raikhola. It defines factoring as the financial transaction where a business sells its account receivables to a third party called a factor at a discounted rate. There are typically three parties involved - the factor, client/seller, and buyer/customer. The presentation describes the key features and types of factoring such as full factoring, recourse vs. non-recourse, and domestic vs. international factoring. It also outlines the steps in the factoring process and provides statistics on the factoring industry in India. Forfaiting is discussed as a similar process used to finance export receivables over medium terms of 1-5 years
Bill discounting allows banks to purchase bills or notes from customers before their maturity and credit the discounted value to the customer's account. It provides working capital financing to the customer. Factoring involves the ongoing assignment of accounts receivable invoices from a client to a factoring company, which provides working capital financing, invoice collection services, and accounts receivable management. Forfaiting involves the discounted purchase of medium-term bills of exchange associated with international trade transactions by a forfaiter, typically with tenors of 6 months to 10 years.
Factoring is a financial transaction where a business sells its accounts receivable to a third party called a factor in exchange for immediate cash. This differs from a bank loan in that factoring emphasizes the receivable's value rather than the firm's creditworthiness, it is a purchase of assets rather than a loan, and involves three parties rather than two. The three parties are the seller of the receivable, the debtor, and the factor. Factoring transfers ownership of the receivables to the factor, giving them the right to collect payment from debtors and bear the risk of nonpayment.
One of the oldest forms of business financing, factoring is the cash-management tool of choice for many companies. Factoring is very common in certain industries, such as the clothing industry, where long receivables are part of the business cycle.
The document discusses various types of leases including financial leases, operating leases, sale and leaseback arrangements, and international leasing. It defines key lease terms and parties. It also outlines the regulatory framework for leases under contract law and discusses lease documentation and agreements.
This document provides information on factoring and forfaiting. It defines factoring as the purchase of accounts receivables by a factoring company, which provides financing, debt collection services, and protects against bad debts. Forfaiting involves the outright sale of receivables to a forfaiter at a discounted price without recourse to the seller. The key differences between the two are that factoring is for ongoing arrangements, provides various services, and has no minimum transaction size, while forfaiting is for single transactions over $250k and only provides financing without recourse.
Hire purchase originated in the early 19th century as a way for consumers to acquire goods through installment payments rather than outright purchase. Key points:
- Under hire purchase, possession of goods is transferred immediately but legal ownership transfers once all installments are paid.
- It allows consumers to pay for expensive items like vehicles or equipment over time through a down payment and monthly installments.
- Hire purchase grew in popularity in the 20th century, especially after World Wars I and II, as it facilitated economic activity and acquisition of goods.
This document provides an overview of factoring and forfaiting. It defines factoring as the sale of book debts by a firm to a financial institution, with the factor paying for the debts as they are collected. Forfaiting is similar but deals specifically with receivables from deferred payment exports. The key parties in each transaction and services provided are described. The document also compares factoring to bills discounting and forfaiting, outlines the various types of factoring, and summarizes the mechanics and stages involved in domestic and export factoring as well as forfaiting transactions.
Non-banking financial companies (NBFCs) are financial institutions that provide banking services like loans and credit facilities but do not hold a banking license. NBFCs are registered under the Companies Act and regulated by the Reserve Bank of India. They provide services such as private education funding, retirement planning, money market trading, stock underwriting and portfolio management. Some major NBFCs in India include HDFC, Power Finance Corporation, Reliance Capital, and Infrastructure Development Finance Company. NBFCs play an important role in the Indian financial system by providing quick financing alternatives to businesses without complex banking procedures.
The document discusses foreign exchange and the foreign exchange market. It defines foreign exchange as the exchange of currencies between countries. The foreign exchange market allows currencies to be bought and sold and facilitates international trade and investment. It operates globally 24/7 through electronic networks and connects various participants such as banks, businesses, investors, and central banks.
Forfaiting is a form of financing international trade receivables through the discounting of trade bills and promissory notes without recourse to the exporter. It involves a forfaiter purchasing the receivables from the exporter at a discount, taking on the full risk of non-payment. The process begins with a commercial contract between an exporter and importer, where the importer draws bank-guaranteed promissory notes payable to the exporter. The exporter then enters an agreement to sell the notes to a forfaiter at a discount, receiving immediate payment, and the forfaiter collects payment at maturity from the importer's bank. Forfaiting provides 100% financing to exporters and eliminates risks
The document discusses various aspects of the new issue market in India including initial public offerings (IPO) where firms issue stock to the public for the first time, and seasoned equity offerings (SEO) where already public firms issue additional stock. It covers the key functions of origination, underwriting, and distribution in new stock issues. It also discusses the roles of various intermediaries that facilitate new issues such as merchant bankers, brokers, and underwriters.
This document provides an overview of securitization of debt. It defines securitization as the conversion of future cash flows from financial assets like loans into tradable securities that can be sold in the market. This process allows lenders to raise funds. A special purpose vehicle (SPV) is used as an intermediary between the originator of assets and investors. The SPV issues different types of securities backed by assets like mortgages (MBS), consumer debt (ABS), and corporate debt (CDO). The document discusses the key features and types of securitizable assets in securitization.
The Power Point Presented in Financial Market Instrument Class Seminars at Teresian College. It highlights the GDR Meaning, definitions, working mechanism, and features.
Non-banking financial companies (NBFCs) are financial institutions registered under the Companies Act and engaged in lending and investment activities. The document discusses the history and regulation of NBFCs in India. It outlines the various types of NBFCs and their roles in providing credit to sectors underserved by banks. While NBFCs cannot accept demand deposits like banks, they play an important role in developing industries and financing first-time buyers. The Reserve Bank of India regulates NBFC registration and prudential norms in India.
The document provides an overview of the Reserve Bank of India (RBI), including its history, organization, functions, and role in monetary policy. Some key points:
- RBI was established in 1935 and serves as India's central bank, regulating the country's monetary policy and currency.
- Its key functions include financial supervision of banks, managing monetary policy, issuing currency, acting as banker to the government and banks, regulating the financial sector, and managing foreign exchange.
- RBI aims to control inflation through monetary policy tools like repo and reverse repo rates, cash reserve ratios, and open market operations. It also plays a developmental role in agriculture lending and disaster relief.
Export finance provides short-term and long-term financing to exporters. Short-term pre-shipment financing covers expenses before goods are shipped such as raw materials and production, while post-shipment financing bridges the time until payment is received from overseas buyers. Banks provide various types of export financing including cash loans, advances against letters of credit or export orders, and discounted export bills. Government schemes also aim to promote exports through concessional financing such as foreign currency pre-shipment credit and financing for rupee project export contract expenditures.
Documents involved in International trade, INCOTERMS, Trade and Exchange Cont...Mohammed Jasir PV
Documents involved in International trade: Statutory Documents, Financial Documents, Transport Documents, Risk Bearing Documents. INCOTERMS: C.I.F., F.O.B., C.I.P. Financing of Imports by Opening of Letter of Credit: Documents required, Trade and Exchange Control Formalities, Sanction of LC Limit. -- Export Finance: Financing of Export/ Deemed Export: Pre ship, and Post Ship Finance, Export Methods --, E.C.G.C. and other formalities. Uniform Custom Practices of Documentary Credits -- Uniform Rules Collection
The foreign exchange market serves three main functions:
1) The transfer function allows for the purchasing power to be transferred between countries through credit instruments like bills of exchange, bank drafts, and telephonic transfers.
2) The credit function provides credit for foreign trade by acting as an intermediary between exporters and importers through purchasing bills of exchange, direct loans, and letters of credit.
3) The hedging function allows exporters and importers to cover exchange rate risks by agreeing on future sales and purchases at current prices and exchange rates, protecting them from potential losses caused by future exchange rate variations.
The document discusses the evolution and features of swap markets. It begins by defining a swap as an agreement between two counterparties to exchange cash flows in the future, with terms like payment dates, currencies, and calculation of cash flows determined by the parties. The origin of swap markets is traced back to the 1970s in response to exchange rate instability. In the 1980s, multinational corporations began using swaps as more flexible alternatives to loans. Standardized documentation helped fuel growth, and new types of swaps like interest rate and currency swaps emerged. The key features of swaps discussed are counterparties, facilitators, cash flows, documentation, benefits, termination, and default risk.
Factoring and forfeiting are mechanisms that provide liquidity to exporters and traders by purchasing their receivables. Factoring involves a financial institution called a factor purchasing a firm's invoices and undertaking the responsibility of collecting payments from customers. Forfeiting specifically deals with receivables from deferred payment exports where the right to payment is purchased without recourse to the exporter. Both mechanisms convert future expected cash flows into immediate liquidity. They allow firms to better manage their working capital needs and cash flows.
The document discusses factoring and forfaiting. It provides details on:
1) Factoring involves the sale of book debts or invoices by a firm to a financial institution for an immediate payment, with the factor taking on responsibility for collection.
2) Forfaiting deals specifically with receivables related to deferred payment exports, where the exporter's rights are purchased without recourse.
3) Both mechanisms provide liquidity to exporters and absorb risks like political or conversion risks associated with cross-border receivables.
Bill discounting allows banks to purchase bills or notes from customers before their maturity and credit the discounted value to the customer's account. It provides working capital financing to the customer. Factoring involves the ongoing assignment of accounts receivable invoices from a client to a factoring company, which provides working capital financing, invoice collection services, and accounts receivable management. Forfaiting involves the discounted purchase of medium-term bills of exchange associated with international trade transactions by a forfaiter, typically with tenors of 6 months to 10 years.
Factoring is a financial transaction where a business sells its accounts receivable to a third party called a factor in exchange for immediate cash. This differs from a bank loan in that factoring emphasizes the receivable's value rather than the firm's creditworthiness, it is a purchase of assets rather than a loan, and involves three parties rather than two. The three parties are the seller of the receivable, the debtor, and the factor. Factoring transfers ownership of the receivables to the factor, giving them the right to collect payment from debtors and bear the risk of nonpayment.
One of the oldest forms of business financing, factoring is the cash-management tool of choice for many companies. Factoring is very common in certain industries, such as the clothing industry, where long receivables are part of the business cycle.
The document discusses various types of leases including financial leases, operating leases, sale and leaseback arrangements, and international leasing. It defines key lease terms and parties. It also outlines the regulatory framework for leases under contract law and discusses lease documentation and agreements.
This document provides information on factoring and forfaiting. It defines factoring as the purchase of accounts receivables by a factoring company, which provides financing, debt collection services, and protects against bad debts. Forfaiting involves the outright sale of receivables to a forfaiter at a discounted price without recourse to the seller. The key differences between the two are that factoring is for ongoing arrangements, provides various services, and has no minimum transaction size, while forfaiting is for single transactions over $250k and only provides financing without recourse.
Hire purchase originated in the early 19th century as a way for consumers to acquire goods through installment payments rather than outright purchase. Key points:
- Under hire purchase, possession of goods is transferred immediately but legal ownership transfers once all installments are paid.
- It allows consumers to pay for expensive items like vehicles or equipment over time through a down payment and monthly installments.
- Hire purchase grew in popularity in the 20th century, especially after World Wars I and II, as it facilitated economic activity and acquisition of goods.
This document provides an overview of factoring and forfaiting. It defines factoring as the sale of book debts by a firm to a financial institution, with the factor paying for the debts as they are collected. Forfaiting is similar but deals specifically with receivables from deferred payment exports. The key parties in each transaction and services provided are described. The document also compares factoring to bills discounting and forfaiting, outlines the various types of factoring, and summarizes the mechanics and stages involved in domestic and export factoring as well as forfaiting transactions.
Non-banking financial companies (NBFCs) are financial institutions that provide banking services like loans and credit facilities but do not hold a banking license. NBFCs are registered under the Companies Act and regulated by the Reserve Bank of India. They provide services such as private education funding, retirement planning, money market trading, stock underwriting and portfolio management. Some major NBFCs in India include HDFC, Power Finance Corporation, Reliance Capital, and Infrastructure Development Finance Company. NBFCs play an important role in the Indian financial system by providing quick financing alternatives to businesses without complex banking procedures.
The document discusses foreign exchange and the foreign exchange market. It defines foreign exchange as the exchange of currencies between countries. The foreign exchange market allows currencies to be bought and sold and facilitates international trade and investment. It operates globally 24/7 through electronic networks and connects various participants such as banks, businesses, investors, and central banks.
Forfaiting is a form of financing international trade receivables through the discounting of trade bills and promissory notes without recourse to the exporter. It involves a forfaiter purchasing the receivables from the exporter at a discount, taking on the full risk of non-payment. The process begins with a commercial contract between an exporter and importer, where the importer draws bank-guaranteed promissory notes payable to the exporter. The exporter then enters an agreement to sell the notes to a forfaiter at a discount, receiving immediate payment, and the forfaiter collects payment at maturity from the importer's bank. Forfaiting provides 100% financing to exporters and eliminates risks
The document discusses various aspects of the new issue market in India including initial public offerings (IPO) where firms issue stock to the public for the first time, and seasoned equity offerings (SEO) where already public firms issue additional stock. It covers the key functions of origination, underwriting, and distribution in new stock issues. It also discusses the roles of various intermediaries that facilitate new issues such as merchant bankers, brokers, and underwriters.
This document provides an overview of securitization of debt. It defines securitization as the conversion of future cash flows from financial assets like loans into tradable securities that can be sold in the market. This process allows lenders to raise funds. A special purpose vehicle (SPV) is used as an intermediary between the originator of assets and investors. The SPV issues different types of securities backed by assets like mortgages (MBS), consumer debt (ABS), and corporate debt (CDO). The document discusses the key features and types of securitizable assets in securitization.
The Power Point Presented in Financial Market Instrument Class Seminars at Teresian College. It highlights the GDR Meaning, definitions, working mechanism, and features.
Non-banking financial companies (NBFCs) are financial institutions registered under the Companies Act and engaged in lending and investment activities. The document discusses the history and regulation of NBFCs in India. It outlines the various types of NBFCs and their roles in providing credit to sectors underserved by banks. While NBFCs cannot accept demand deposits like banks, they play an important role in developing industries and financing first-time buyers. The Reserve Bank of India regulates NBFC registration and prudential norms in India.
The document provides an overview of the Reserve Bank of India (RBI), including its history, organization, functions, and role in monetary policy. Some key points:
- RBI was established in 1935 and serves as India's central bank, regulating the country's monetary policy and currency.
- Its key functions include financial supervision of banks, managing monetary policy, issuing currency, acting as banker to the government and banks, regulating the financial sector, and managing foreign exchange.
- RBI aims to control inflation through monetary policy tools like repo and reverse repo rates, cash reserve ratios, and open market operations. It also plays a developmental role in agriculture lending and disaster relief.
Export finance provides short-term and long-term financing to exporters. Short-term pre-shipment financing covers expenses before goods are shipped such as raw materials and production, while post-shipment financing bridges the time until payment is received from overseas buyers. Banks provide various types of export financing including cash loans, advances against letters of credit or export orders, and discounted export bills. Government schemes also aim to promote exports through concessional financing such as foreign currency pre-shipment credit and financing for rupee project export contract expenditures.
Documents involved in International trade, INCOTERMS, Trade and Exchange Cont...Mohammed Jasir PV
Documents involved in International trade: Statutory Documents, Financial Documents, Transport Documents, Risk Bearing Documents. INCOTERMS: C.I.F., F.O.B., C.I.P. Financing of Imports by Opening of Letter of Credit: Documents required, Trade and Exchange Control Formalities, Sanction of LC Limit. -- Export Finance: Financing of Export/ Deemed Export: Pre ship, and Post Ship Finance, Export Methods --, E.C.G.C. and other formalities. Uniform Custom Practices of Documentary Credits -- Uniform Rules Collection
The foreign exchange market serves three main functions:
1) The transfer function allows for the purchasing power to be transferred between countries through credit instruments like bills of exchange, bank drafts, and telephonic transfers.
2) The credit function provides credit for foreign trade by acting as an intermediary between exporters and importers through purchasing bills of exchange, direct loans, and letters of credit.
3) The hedging function allows exporters and importers to cover exchange rate risks by agreeing on future sales and purchases at current prices and exchange rates, protecting them from potential losses caused by future exchange rate variations.
The document discusses the evolution and features of swap markets. It begins by defining a swap as an agreement between two counterparties to exchange cash flows in the future, with terms like payment dates, currencies, and calculation of cash flows determined by the parties. The origin of swap markets is traced back to the 1970s in response to exchange rate instability. In the 1980s, multinational corporations began using swaps as more flexible alternatives to loans. Standardized documentation helped fuel growth, and new types of swaps like interest rate and currency swaps emerged. The key features of swaps discussed are counterparties, facilitators, cash flows, documentation, benefits, termination, and default risk.
Factoring and forfeiting are mechanisms that provide liquidity to exporters and traders by purchasing their receivables. Factoring involves a financial institution called a factor purchasing a firm's invoices and undertaking the responsibility of collecting payments from customers. Forfeiting specifically deals with receivables from deferred payment exports where the right to payment is purchased without recourse to the exporter. Both mechanisms convert future expected cash flows into immediate liquidity. They allow firms to better manage their working capital needs and cash flows.
The document discusses factoring and forfaiting. It provides details on:
1) Factoring involves the sale of book debts or invoices by a firm to a financial institution for an immediate payment, with the factor taking on responsibility for collection.
2) Forfaiting deals specifically with receivables related to deferred payment exports, where the exporter's rights are purchased without recourse.
3) Both mechanisms provide liquidity to exporters and absorb risks like political or conversion risks associated with cross-border receivables.
This document provides an overview of factoring in India. It defines factoring as the selling of accounts receivables or debtors by a firm to a financial intermediary called a factor. The key points covered include: the history of factoring in India; the parties involved; services provided by factors such as debt collection and credit protection; the factoring process; types of factoring including recourse, non-recourse, and maturity factoring; mechanics of how factoring works; advantages and limitations; and applicable statutes.
This document provides an overview of factoring in India. It defines factoring as the selling of accounts receivables or debtors by a firm to a financial intermediary called a factor. Factoring originated in India in the 1980s and two major banks, SBI and Canara Bank, set up factoring subsidiaries in 1991. Factoring involves a client selling invoices to a factor in exchange for upfront payment, after which the factor takes responsibility for collection and bears the risk of non-payment. The document outlines the key parties, services, process, types (recourse, non-recourse, maturity), mechanics and advantages of factoring as well as reasons for its lack of popularity in India.
Factoring, receivables factoring or debtor financing, is when a company buys a debt or invoice from another company. Factoring is also seen as a form of invoice discounting in many markets and is very similar but just within a different context.
Factoring and forfeiting are mechanisms for financing exports. Factoring involves purchasing a company's accounts receivables to provide working capital, while forfeiting involves discounting export bills or promissory notes without recourse to the exporter. There are benefits to both exporters and importers such as improved cash flow, risk mitigation, and access to longer term financing. The key differences are that factoring is for ongoing domestic or export sales while forfeiting is for single export transactions backed by letters of credit or guarantees.
Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. Factoring is commonly referred to as accounts receivable factoring, invoice factoring, and sometimes accounts receivable financing.
There are three parties directly involved: the factor who purchases the receivable, the one who sells the receivable, and the debtor who has a financial liability that requires him or her to make a payment to the owner of the invoice.
There are various types of factoring:
Recourse, Non - recourse, maturity and cross - border factoring.
The document discusses factoring, which is when a business sells its accounts receivable to a third party called a factor in exchange for immediate cash. It defines factoring and outlines the key parties involved, including the client/seller, factor, and buyer. It describes the services factors provide, such as financing, account maintenance, debt collection, and credit risk protection. It then explains the process of factoring transactions and some of the common types of factoring arrangements.
This document provides information on factoring and forfaiting. It defines factoring as the purchase of accounts receivables by a factoring company, which provides financing, debt collection services, and protects against bad debts. Forfaiting involves the outright sale of receivables to a forfaiter at a discounted price without recourse to the seller. The key differences between the two are that factoring is for ongoing arrangements, provides various services, and has no minimum transaction size, while forfaiting is for single transactions over $250k and only provides discounted financing without recourse.
Factoring and forfaiting are both forms of invoice financing for businesses. Factoring involves the purchase of accounts receivable by a factoring company, which then takes on the responsibility of collecting payments from customers. It is usually used for domestic and export receivables with credit periods under 180 days. Forfaiting specifically refers to the forfeiting of rights to future export receivables in exchange for an upfront discounted payment. It is used for longer term export receivables over 180 days and provides financing without recourse for the exporter. The key differences between the two are the parties involved, eligible receivables and credit periods, and level of services provided.
Factoring and forfaiting are forms of invoice financing that provide liquidity to companies. Factoring involves the sale of accounts receivable to a factor at a discount, who then takes on the responsibility of collection and provides financing against the receivables. Forfaiting specifically refers to financing of international trade receivables without recourse to the exporter. Key differences are that forfaiting provides 100% financing without recourse and guarantees against political and exchange rate risks, for longer tenors of 3-5 years, while factoring also includes receivables administration and is for shorter terms. Factoring is more widely used in India while forfaiting remains less developed due to issues like high costs and lack
This document provides an overview of factoring and forfaiting. It defines factoring as the financial transaction where a business sells its accounts receivable to a third party called a factor at a discount. Forfaiting refers to the financing of receivables related to international trade where the right to export receivables is purchased by a financial intermediary without recourse. The document outlines the key parties involved in factoring and forfaiting, the different types of factoring arrangements, the functions of a factor, and the information and documents required by a forfaiter.
This document discusses factoring, which is a financial transaction where a business sells its accounts receivable to a third party called a factor in exchange for immediate cash. There are several types of factoring described, including domestic, international, recourse, non-recourse, maturity, and invoice factoring. The key differences between factoring and a bank loan are also outlined. A case study is then provided showing how a company used export factoring and purchase order financing to fulfill several contracts requiring upfront capital.
The document summarizes Transingo's factoring process and international factoring. It discusses 14 key steps in Transingo's process including agreeing on terms, uploading documents, transferring funds between accounts, and the importer paying according to terms. It also describes two types of international factoring - one using two factors for export and import, and one using a single direct export factor.
The document discusses various types of trade finance instruments including letters of credit, bills of exchange, and guarantees. It provides details on how letters of credit work, involving an importer, exporter, issuing bank, advising bank, and reimbursing bank. The key parties and processes are defined. It also explains the different types of guarantees commonly used in international trade, including bid guarantees, advance payment guarantees, and performance guarantees. The mechanics of how a transaction involving a guarantee is processed between the applicant, issuing bank, advising bank, and beneficiary are outlined.
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2. FACTORING AND FORFAITING
Factoring is of recent origin in Indian Context.
Kalyana Sundaram Committee recommended introduction of factoring
in 1989.
Banking Regulation Act, 1949, was amended in 1991 for Banks setting
up factoring services.
SBI/Canara Bank have set up their Factoring Subsidiaries:-
SBI Factors Ltd., (April, 1991)
CanBank Factors Ltd., (August, 1991).
RBI has permitted Banks to undertake factoring services through
subsidiaries.
3. WHAT IS FACTORING ?
Factoring is the Sale of Book Debts by a firm (Client) to a financial institution
(Factor) on the understanding that the Factor will pay for the Book Debts as
and when they are collected or on a guaranteed payment date. Normally, the
Factor makes a part payment (usually upto 80%) immediately after the debts
are purchased thereby providing immediate liquidity to the Client.
PROCESS OF FACTORING
CLIENT CUSTOMER
FACTOR
4. So, a Factor is,
a) A Financial Intermediary
b) That buys invoices of a manufacturer or a trader, at a discount,
and
c) 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)
5. SERVICES OFFERED BY A
FACTOR
1. Follow-up and collection of Receivables from
Clients.
2. Purchase of Receivables with or without
recourse.
3. Help in getting information and credit line on
customers (credit protection)
4. Sorting out disputes, if any, due to his
relationship with Buyer & Seller.
6. PROCESS INVOLVED IN
FACTORING
Client concludes a credit sale with a customer.
Client sells the customer’s account to the Factor and notifies the customer.
Factor makes part payment (advance) against account purchased, after
adjusting for commission and interest on the advance.
Factor maintains the customer’s account and follows up for payment.
Customer remits the amount due to the Factor.
Factor makes the final payment to the Client when the account is collected
or on the guaranteed payment date.
7. MECHANICS OF FACTORING
The Client (Seller) sells goods to the buyer and prepares invoice with a
notation that debt due on account of this invoice is assigned to and must be
paid to the Factor (Financial Intermediary).
The Client (Seller) submits invoice copy only with Delivery Challan showing
receipt of goods by buyer, to the Factor.
The Factor, after scrutiny of these papers, allows payment (,usually upto 80%
of invoice value). The balance is retained as Retention Money (Margin Money).
This is also called Factor Reserve.
The drawing limit is adjusted on a continuous basis after taking into account
the collection of Factored Debts.
Once the invoice is honoured by the buyer on due date, the Retention Money
credited to the Client’s Account.
Till the payment of bills, the Factor follows up the payment and sends regular
statements to the Client.
8. CHARGES FOR FACTORING
SERVICES
Factor charges Commission (as a flat percentage of value of Debts
purchased) (0.50% to 1.50%)
Commission is collected up-front.
For making immediate part payment, interest charged. Interest is higher
than rate of interest charged on Working Capital Finance by Banks.
If interest is charged up-front, it is called discount.
10. RECOURSE FACTORING
Upto 75% to 85% of the Invoice Receivable is factored.
Interest is charged from the date of advance to the date of collection.
Factor purchases Receivables on the condition that loss arising on account
of non-recovery will be borne by the Client.
Credit Risk is with the Client.
Factor does not participate in the credit sanction process.
In India, factoring is done with recourse.
11. NON-RECOURSE FACTORING
Factor purchases Receivables on the condition that the Factor has
no recourse to the Client, if the debt turns out to be non-
recoverable.
Credit risk is with the Factor.
Higher commission is charged.
Factor participates in credit sanction process and approves credit
limit given by the Client to the Customer.
In USA/UK, factoring is commonly done without recourse.
12. MATURITY FACTORING
Factor does not make any advance payment to the Client.
Pays on guaranteed payment date or on collection of Receivables.
Guaranteed payment date is usually fixed taking into account
previous collection experience of the Client.
Nominal Commission is charged.
No risk to Factor.
13. CROSS - BORDER FACTORING
It is similar to domestic factoring except that there are four parties, viz.,
a) Exporter,
b) Export Factor,
c) Import Factor, and
d) Importer.
It is also called two-factor system of factoring.
Exporter (Client) enters into factoring arrangement with Export Factor in
his country and assigns to him export receivables.
Export Factor enters into arrangement with Import Factor and has
arrangement for credit evaluation & collection of payment for an agreed
fee.
Notation is made on the invoice that importer has to make payment to the
Import Factor.
Import Factor collects payment and remits to Export Factor who passes on
the proceeds to the Exporter after adjusting his advance, if any.
Where foreign currency is involved, Factor covers exchange risk also.
14. FACTORING
vs
BILLS DISCOUNTING
BILL DISCOUNTING
1. Bill is separately examined
and discounted.
2. Financial Institution does
not have responsibility of
Sales Ledger Administration
and collection of Debts.
3. No notice of assignment
provided to customers of
the Client.
FACTORING
1. Pre-payment made against
all unpaid and not due
invoices purchased by
Factor.
2. Factor has responsibility of
Sales Ledger Administration
and collection of Debts.
3. Notice of assignment is
provided to customers of
the Client.
15. FACTORING
vs
BILLS DISCOUNTING (contd…)
BILLS DISCOUNTING
4. Bills discounting is usually
done with recourse.
5. Financial Institution can get
the bills re-discounted
before they mature for
payment.
FACTORING
4. Factoring can be done
without or without recourse
to client. In India, it is done
with recourse.
5. Factor cannot re-discount
the receivable purchased
under advanced factoring
arrangement.
16. STATUTES APPLICABLE TO
FACTORING
Factoring transactions in India are governed by the following
Acts:-
a) Indian Contract Act
b) Sale of Goods Act
c) Transfer of Property Act
d) Banking Regulation Act.
e) Foreign Exchange Regulation Act.
17. WHY FACTORING HAS NOT
BECOME POPULAR IN INDIA
Banks’ reluctance to provide factoring services
Bank’s resistance to issue Letter of Disclaimer (Letter of
Disclaimer is mandatory as per RBI Guidelines).
Problems in recovery.
Factoring requires assignment of debt which attracts Stamp Duty.
Cost of transaction becomes high.
18. FORFAITING
“Forfait” is derived from French word ‘A Forfait’
which means surrender of fights.
Forefaiting is a mechanism by which the right for
export receivables of an exporter (Client) is
purchased by a Financial Intermediary (Forfaiter)
without recourse to him.
It is different from International Factoring in as
much as it deals with receivables relating to
deferred payment exports, while Factoring deals
with short term receivables.
19. FORFAITING (contd…)
Exporter under Forfaiting surrenders his right for claiming payment
for services rendered or goods supplied to Importer in favour of
Forefaiter.
Bank (Forefaiter) assumes default risk possessed by the Importer.
Credit Sale gets converted as Cash Sale.
Forfaiting is arrangement without recourse to the Exporter (seller)
Operated on fixed rate basis (discount)
Finance available upto 100% of value (unlike in Factoring)
Introduced in the country in 1992.
20. MECHANICS OF FORFAITING
EXPORTER IMPORTER
FORFAITER AVALLING BANK
HELD TILL MATURITY
SELL TO GROUPS OF INVESTORS
TRADE IN SECONDARY MARKET
21. ESSENTIAL REQUISITES OF
FORFAITING TRANSACTIONS
Exporter to extend credit to Customers for periods above 6
months.
Exporter to raise Bill of Exchange covering deferred receivables
from 6 months to 5 years.
Repayment of debts will have to be avallised or guaranteed by
another Bank, unless the Exporter is a Government Agency or a
Multi National Company.
Co-acceptance acts as the yard stick for the Forefaiter to credit
quality and marketability of instruments accepted.
22. IN FORFAITING:-
Promissory notes are sent for avalling to the Importer’s Bank.
Avalled notes are returned to the Importer.
Avalled notes sent to Exporter.
Avalled notes sold at a discount to a Forefaiter on a NON-
RECOURSE basis.
Exporter obtains finance.
Forfaiter holds the notes till maturity or securitises these
notes and sells the Short Term Paper either to a group of
investors or to investors at large in the secondary market.
23. CHARACTERISTICS OF
FORFAITING
Converts Deferred Payment Exports into cash transactions, providing
liquidity and cash flow to Exporter.
Absolves Exporter from Cross-border political or conversion risk associated
with Export Receivables.
Finance available upto 100% (as against 75-80% under conventional credit)
without recourse.
Acts as additional source of funding and hence does not have impact on
Exporter’s borrowing limits. It does not reflect as debt in Exporter’s
Balance Sheet.
Provides Fixed Rate Finance and hence risk of interest rate fluctuation
does not arise.
24. CHARACTERISTICS OF
FORFAITING (contd….)
Exporter is freed from credit administration.
Provides long term credit unlike other forms of bank credit.
Saves on cost as ECGC Cover is eliminated.
Simple Documentation as finance is available against bills.
Forfait financer is responsible for each of the Exporter’s trade
transactions. Hence, no need to commit all of his business or
significant part of business.
Forfait transactions are confidential.
25. COSTS INVOLVED IN
FORFAITING
Commitment Fee:- Payable to Forfaiter by Exporter in
consideration of forefaiting services.
Commission:- Ranges from 0.5% to 1.5% per annum.
Discount Fee:- Discount rate based on LIBOR for the period
concerned.
Documentation Fee:- where elaborate legal formalities are
involved.
Service Charges:- payable to Exim Bank.
26. FACTORING vs. FORFAITING
POINTS OF
DIFFERENCE
FACTORING FORFAITING
Extent of Finance Usually 75 – 80% of the
value of the invoice
100% of Invoice value
Credit
Worthiness
Factor does the credit
rating in case of non-
recourse factoring
transaction
The Forfaiting Bank
relies on the
creditability of the
Avalling Bank.
Services provided Day-to-day administration
of sales and other allied
services
No services are
provided
Recourse With or without recourse Always without
recourse
Sales By Turnover By Bills
27. COMPARATIVE ANALYSIS
BILLS
DISCOUNTED
FACTORING FORFAITING
1. Scrutiny Individual Sale
Transaction
Service of Sale
Transaction
Individual Sale
Transaction
2. Extent of
Finance
Upto 75 – 80% Upto 80% Upto 100%
3. Recourse With Recourse With or
Without
Recourse
Without
Recourse
4. Sales
Administration
Not Done Done Not Done
5. Term Short Term Short Term Medium Term
6. Charge
Creation
Hypothecation Assignment Assignment
28. WHY FORFAITING HAS NOT
DEVELOPED
Relatively new concept in India.
Depreciating Rupee
No ECGC Cover
High cost of funds
High minimum cost of transactions (USD 250,000/-)
RBI Guidelines are vague.
Very few institutions offer the services in India. Exim Bank alone
does.
Long term advances are not favoured by Banks as hedging becomes
difficult.
Lack of awareness.
29. STAGES INVOLVED IN FORFAITING:-
Exporter approaches the Facilitator (Bank) for obtaining Indicative
Forfaiting Quote.
Facilitator obtains quote from Forfaiting Agencies abroad and
communicates to Exporter.
Exporter approaches importer for finalising contract duly loading the
discount and other charges in the price.
If terms are acceptable, Exporter approaches the Bank (Facilitator) for
obtaining quote from Forfaiting Agencies.
Exporter has to confirm the Firm Quote.
Exporter has to enter into commercial contract.
Execution of Forfaiting Agreement with Forefaiting Agency.
Export Contract to provide for Importer to furnish avalled BoE/DPN.
30. STAGES INVOLVED IN FORFAITING:- (contd…..)
Forfaiter commits to forefait the BoE/DPN, only against Importer Bank’s Co-
acceptance. Otherwise, LC would be required to be established.
Export Documents are submitted to Bank duly assigned in favour of Forfaiter.
Bank sends document to Importer's Bank and confirms assignment and copies
of documents to Forefaiter.
Importer’s Bank confirms their acceptance of BoE/DPN to Forfaiter.
Forfaiter remits the amount after deducting charges.
On maturity of BoE/DPN, Forfaiter presents the instrument to the Bank and
receives payment.
Forfaiter commits to forefait the BoE/DPN only against Importer Bank’s Co-
acceptance. Otherwise, LC would be required to be established.
31. STAGES INVOLVED IN FORFAITING:- (contd…..)
Export Documents are submitted to Bank duly assigned in favour of
Forfaiter
Importer’s Bank confirms their acceptance of BoE/DPN to
Forfaiter.
Forfaiter remits the amount after deducting charges.
On maturity of BoE/DPN, Forfaiting Agency presents the
instruments to the Bank and receives payment
32. STAGES INVOLVED IN EXPORT FACTORING
Exporter (Client) gives his name, address and credit limit required to the
Export Factor.
Export Factor submits the details of Buyer to the Import Factor.
Import Factor decides on the credit cover and communicates decision to
Export Factor.
Export Factor enters into Factoring Agreement with Exporter.
Overseas Buyer is notified of this arrangement.
Exporter is then free to ship the goods to Buyers directly.
Exporter submits original documents, viz., invoice and shipping documents
duly assigned and receives advance there-against (upto 80%).
33. STAGES INVOLVED IN EXPORT FACTORING (contd…..)
Export Factor despatches all the original documents to Importer/Buyer
after duly affixing “Assignment Clause” in favour of the Import Factor.
Export Factor sends copy of invoice to Import Factor in the Debtor’s
country.
Import Factor follows up and receives payment on due date and remits to
Export Factor.
Export Factor, on receipt of payment, releases the balance of proceeds to
Exporter.