This document provides information on factoring and forfaiting. It discusses the key functions of a factor, including financing, sales ledger administration, credit risk assessment, and consultancy. Factoring can help companies access cash flows more quickly by having a third party (the factor) manage receivables and collections. The document outlines the mechanics of a factoring transaction and compares factoring to alternatives like bill discounting. It also discusses export factoring and how it works.

1. FACTORING & FORFAITING
A Presentation on
FACTORING
&
FORFEITING
by
Mr. S. K. Vaze

2. FACTORING
• A SALE CAN BE OF TWO TYPES.
a) CASH SALE
b) CREDIT SALE.
• THE TRUE AXIOM OF CREDIT
MANAGEMENT IS:
“ A SALE IS NOT COMPLETE UNTILL
THE CASH IS IN THE TILL”

3. FACTORING
• SUPPLIER’S CREDIT
• BUYER’S CREDIT
SUPPLIER:BAJAJ,
BUYER: DINSHAW,
BAJAJ’S BANKERS: CENTRAL BANK
OF INDIA,
DINSHAW’S BANKERS: BANK OF
BARODA

4. FACTORING
• LARGE HOUSES AND ESPECIALLY
PUBLIC SECTOR ONES DELAY THE
PAYMENT OF CREDIT SALES EITHER
DELIBERATELY OR ON ACCOUNT OF
CASH FLOW PROBLEMS.

5. FACTORING
• FOR SMALL INDUSTRIES THE
FORCED ELONGATION OF WORKING
CYCLE RESULTS IN
– REDUCED FINANCE
– DWINDLING PRODUCTION
– ULTIMATE DESTINY OF CLOSURE

6. FACTORING
• BESIDES FINANCIAL CONSTRAINTS
STATED ABOVE, THE COMPANIES
SUFFER FROM SEVERAL OTHER
MANAGEMENT MALAISE AS UNDER:

7. FACTORING
• 1) NON-MAINTENANCE OF PROPER
BOOKS AND RECORDS
• 2) POOR ADMINISTRATION OF SALES
REGISTER
• 3) POOR COLLECTION MECHANISM

8. FACTORING
• 4) LACK OF WELL DEVELOPED
METHODS OF ASSESSMENT OF
CREDIT RISK AND CONSEQUENT
SETTING UP OF DEBTOR WISE
CREDIT LIMIT.
• 5) NON-AVAILIBILITY OF
PROTECTION AGAINST BAD DEBTS.

9. FACTORING
• IN VIEW OF THE ABOVE SCENARIO,
THE INSTITUTION OF FACTORING
HAS BEEN CONCEIVED.
• ALTHOUGH IT IS NOT A SOLUTION
FOR ALL ORGANISATIONAL ILLS, IT
SUBSTANTIALLY REDUCES EFFECTS
OF THE SAME.

10. FACTORING
• THE MAIN FUNCTIONS OF A FACTOR
CAN BE GROUPED IN FOLLOWING 4
BROAD CATEGORIES.
– 1) FINANCE
– 2) ADMINSTRATION OF SALES LEDGER
– 3) CREDIT RISK ASSESSMENT
– 4) CONSULTANCY

11. FACTORING
• HIGH PERFORMANCE MECHANISM
FOR CUSTOMER ACCOUNT
MANAGEMENT
• OUTSTANDING PAYMENTS ARE AT
THE ROOT OF BUSINESS FAILURES
• FACTORS REDUCE INSTANCES OF
LATE PAYMENTS BY HALF NUMBERS

12. FACTORING
• FINANCING DEBT IS NOT THE ONLY
SERVICE OFFERED BY FACTORS.
• FACTORING DOES NOT GIVE
IMPRESSION OF A COMPANY IN
DIFFICULTY.
• INFACT IT PRESENTS A RESPOSIBLE
IMAGE, DEMONSTRATING THAT CO.
PREFERS EFFECTIVE MANAGEMENT

13. FACTORING
• FACTORS PROVIDE CO. WITH FULL
INFORMATION REGARDING ITS
CUSTOMER SITUATION. THUS ENABLING
THE COMPANY TO DIRECT IT’S SALES
POLICY SUITABLY.
• SOME OF THE SERVICES OFFERED BY
FACTORS MAY NOT BE FEASIBLE TO
COMPANY ON A REGULAR BASIS.

14. FACTORING
• CONSISTS OF FOLLWING STEPS
– 1) APPLICATION
– 2) CREDIT APPRAISAL
– 3) DECISION
– 4) DOCUMENTATION
– 5) DESPATCH OF GOODS
– 6) DISBURSEMENT
– 7) MONITORING
– 8) DEBT COLLECTION
– 9) FOLLOW-UP

15. BAJAJ
CLIENT
DINSHAW
CUSTOMER
CANBANK
FACTOR
1
2
3
6
7
10
5
8
9
8
9
FLOWCHART OF FACTORING TRANSACTION
4

16. MECHANICS OF FACTORING
• 1. DINSHAW PLACES ORDER ON
BAJAJ
• 2. BAJAJ GIVES DETAILS OF
TRANSACTION TO CANBANK
FACTOR

17. MECHANICS OF FACTORING
• 3. CANBANK FACTOR FIXES LIMIT
ON DINSHAW
• 4. AGREEMENT BETWEEN BAJAJ
AND CANBANK FACTOR
REGARDING FACTORING

18. MECHANICS OF FACTORING
• 5. BAJAJ DESPATCHES GOODS,
SENDS INVOICE TO DINSHAW, WITH
AN AUTHORITY TO PAY THE
AMOUNT ON DUE DATE TO
CANBANK FACTOR

19. MECHANICS OF FACTORING
• 6. BAJAJ SUBMITS COPY OF
INVOICE TO CANBANK FACTOR
• 7. CANBANK FACTOR PAYS APPROX
80% AMOUNT TO BAJAJ

20. MECHANICS OF FACTORING
• 8. CANBANK FACTOR SENDS MONTHLY
STATEMENT OF DUES TO DINSHAW
• 9. DINSHAW PAYS CANBANK FACTOR ON
DUE DATE

21. MECHANICS OF FACTORING
• 10. CANBANK FACTOR PAYS
BALANCE TO BAJAJ AFTER
RECOVERING AMOUNT FINANCED
WITH INTEREST AND COMMISION
AND CHARGES.

22. CASH CREDIT FACTORING
1. MARGIN RETAINED ON
RECEIVABLES ARE USUALLY
40-50 %.
2. THE DRAWING POWER ON
THE BASIS OF
STOCK STATEMENTS IS
COMPUTED ONCE
MONTH. IF INVOICES ARE
RAISED BETWEEN SUBMISSION
OF STOCK STATEMENTS, NO
MONEY CAN BE DRAWN
AGAINST THEM.
1. MARGIN USUALLY
RETAINED IS 20%
2. PREPAYMENTS AGAINST
INVOICES ARE MADE AS
AND WHEN THEY ARE
FACTORED. IT IS LIKE CASH
SALES.
.

23. CASH CREDIT FACTORING
3. THE CLIENT HAS TO
SUBMIT VARIOUS
STATEMENTS LIKE QIS, I, II
& III,
STOCK STATEMENTS ETC.
TO THE BANK.
4. NO COLLECTION
SERVICES PERFORMED FOR
THE CLIENTS.
5. SANCTION / RESPONSE
TIME : DELAYS DUE TO
MULTI TIERS
3. NO STATEMENTS IS TO BE
GIVEN. ON THE CONTRARY
FACTORS FURNISH
VARIOUS REPORTS TO
BOTH THE CLIENT AND THE
CUSTOMER.
4. ONE OF THE FUNCTION OF
THE FACTOR IS DEBT
COLLECTION
5. SANCTION / RESPONSE
TIME : VERY FAST

24. CASH CREDIT FACTORING
6. ONCE A BOOK DEBT
EXCEEDS ITS USANCE
PERIOD, IT IS REMOVED
FROM THE ELIGIBLE LIST
7. HIGHER LIMITS ARE
BIFURCATED INTO CC AND DL
COMPONENTS.
8. COLLECTION TIME : TAKES
ROUTINE COLLECTION TIME
6. THE FACTOR ALLOWS
GENEROUS GRACE PERIODS.
7. NO SUCH BIFURCATION.
THE FACTORING ACCOUNT
OPERATES LIKE A CC
ACCOUNT
8. COLLECTION TIME : VERY
FAST (COLLECTION AGENTS
EMPLOYED)

25. CASH CREDIT FACTORING
9. PROCESSING FEES ARE
ABOUT 1 % OF THE LIMIT.
10. INTEREST LINKED TO
PLR.
11. GRACE PERIOD FOR
PAYMENT -- NIL
12. NO MISC SERVICES
9. MAXIMUM PROCESSING
FEES OF RS. 30000/- FOR NON-
SSI & RS.15000/- FOR SSI.
1 0. FINANCE CHARGE LINKED
TO COST OF FUNDS WHICH IS
COMPETITIVE TO THAT OF
BANKS.
11. GRACE PERIOD FOR
PAYMENT -- EQUAL TO CREDIT
PERIOD OR 60 DAYS
12. M I S DATA FURNISHED –
AGE WISE BREAK UP,
OVERDUE INVOCES DATA.

26. FACTORING
Bill Discounting & Factoring
• MAIN REASONS CITED BY
BORROWERS FOR DISSATISFACTION
WITH BANK FINANCE
– 1) INADEQUATE
– 2) INORDINATE DELAY
– 3) EXCESS SECURITY CONSCIOUSNESS
– 4) UNILATERAL DECISION TO REDUCE
D/P IN CASE OF NON PAYMENT ON DUE
DATE BY BUYER.

27. FACTORING
Bill Discounting & Factoring
• BILL
DISCOUNTING
– FINANCING ALONE
IS PROVIDED
• FACTORING
– TOTAL SERVICES i.e.
FINANCE, SALES
LEDGER
MAINTENANCE,
COLLECTION AND
FOLLOW UP ARE
PROVIDED

28. FACTORING
Bill Discounting & Factoring
• INDIVIDUAL
TRANSACTION
• WHOLE
TURNOVER BASIS.
• THIS ALSO GIVES
THE CLIENT THE
LIBERTY TO DRAW
DESIRED FINANCE
ONLY

29. FACTORING
Bill Discounting & Factoring
• EACH BILL HAS TO
BE INDIVIDUALLY
ACCEPTED BY THE
DRAWEE WHICH
TAKES TIME.
• A ONE TIME
NOTIFICATION IS
TAKEN FROM THE
CUSTOMER AT THE
COMMENCEMENT
OF THE FACILITY

30. FACTORING
Bill Discounting & Factoring
• STAMP DUTY IS
CHARGED ON
CERTAIN USANCE
BILLS TOGETHER
WITH BANK
CHARGES.IT
PROVES VERY
EXPENSIVE.
• NO STAMP DUTY IS
CHARGED ON THE
INVOICES. NO
CHARGES OTHER
THAN THE USUAL
FINANCE AND
SERVICE CHARGE.

31. FACTORING
Bill Discounting & Factoring
• MORE PAPERWORK
IS INVOLVED.
• NO SUCH
PAPERWORK IS
INVOLVED.

32. FACTORING
Bill Discounting & Factoring
• ORIGINAL
DOCUMENTS LIKE
MTR, RR, BILL OF
LADING ARE TO BE
SUBMITTED.
• ONLY COPIES OF
SUCH DOCUMENTS
ARE
NECESSARY.

33. FACTORING
Bill Discounting & Factoring
• CHARGES ARE
NORMALLY UP
FRONT
• NO UPFRONT
CHARGES.
FINANCE
CHARGES ARE
LEVIED ON ONLY
THE AMOUNT OF
MONEY
WITHDRAWN.

34. FACTORING
Bill Discounting & Factoring
• ONLY 3 DAYS
GRACE PERIOD IS
PROVIDED
• GRACE PERIOD
EQUAL TO CREDIT
PERIOD OR 60
DAYS IS PROVIDED

35. FACTORING
Bill Discounting & Factoring
• IF BILL REMAINS
UNPAID ON DUE
DATE, BANK
CHARGES PENAL
INTEREST TILL
TIME BILL IS PAID
• FACTORS DO NOT
CHARGE PENAL
INTEREST FOR
GRACE PERIOD.

36. FACTORING
Bill Discounting & Factoring
• SERVICE CHARGES
ARE LEVIED @ 35
TO 45 PS. PER Rs.
100/, BESIDES OUT
OF POCKET
EXPENSES
• SERVICE CHARGES
ARE LEVIED @ 10
ps, 20 ps, 30 ps PER
Rs. 100/ OF INVOICE
VALUE
DEPENDING UPON
THE TURNOVER.
• FACTORS PROVIDE
AT PAR FACILITY.

37. FACTORING
Bill Discounting & Factoring
• “IN-BALANCE
SHEET” FINANCE
i.e. BOTH
RECEVABLES AND
BANK CREDIT ARE
REFLECTED IN
BALANCE SHEET
OF COMPANY AS
CA & CL RESP.
• FULL FACTORING
IS “OFF-BALANCE
SHEET” FINANCE
DUE TO “WITHOUT
RECOURSE”
NATURE OF
FACILITY.

38. FACTORING
Bill Discounting & Factoring
• NO FOLLOW UP IS
DONE
• INDIVIDUAL
DEBTORS ARE
FOLLOWED UP ON
INVOICE TO
INVOICE BASIS.

39. BENEFITS OF FACTORING
• FINANCES DEBT
• HELPS COMPANIES TO PROTECT
AGAINST CUSTOMER RISK
• DEBTORS ARE FOLLOWED UP
SYSTEMATICALLY
• REDUCES BY HALF THE NUMBERS OF
LATE PAYMENTS
• REDUCES FINANCIAL COSTS

40. FACTORING
CHARGES
• FACTORING CHARGE
– BOOK-KEEPING
– CUSTOMER FOLLOW-UP
– DEBT COLLECTION
– INFORMATION ON CUSTOMERS
– IN THE REGION OF 0.5% TO 3 %
• FINANCING FEES
– --CURRENT SHORT TERM RATES

41. FACTORING
CHARGES
• MONTHLY
INVOICES
– RESEVRE
• CASH ADVANCED
• Rs. 50000/
– Rs. 7500
Rs. 42500/

42. FACTORING
CHARGES
• Customer pays
• LESS Factor Service
Fees 1%
• LESS Interest @ 6%
p.a.for 6 months
• LESS Amount already
advanced
• Additional amount
Paid
• Rs. 50000/
• Rs. 500/
• Rs. 1275/
• Rs. 42500/
• -----------------
• Rs. 5725/
• ------------------

43. FACTORING
CHARGES
• FACTORING SERVICE CHARGES ARE
MARGINALLY HIGHER THAN BANK
FINANCE.
• HOWEVER IF THE COSTS FOR ADDITIONAL
SERVICES PROVIDED BY FACTORS SUCH
AS SALES LEDGER MAINTENANCE,
COLLECTION OF RECEIVABLES AND
OTHER SERVICES ARE TAKEN INTO
ACCOUNT IT BECOMES COMETITIVE.

44. PURCHASE BILL
FACTORING SCHEME
• SOME FACTORS HAVE LAUNCHED A
NEW SCHEME WHICH ENABLES
CORPORATES HAVING LARGE
SUPPLIER BASE TO SMOOTHEN
THEIR SUPPLIES.

45. PURCHASE BILL
FACTORING SCHEME
• UNDER THIS SCHEME FACTOR
PROVIDES FUNDS TO SUPPLIER,
• THIS HELPS TO SAVE SUBSTANTIAL
COST ON CREDIT PURCHASES THUS
IMPROVING PROFITABILITY BY
AVAILING CASH DISCOUNTS.

46. PURCHASE BILL
FACTORING SCHEME
• 1. CLIENT SUBMITS APPLICATION
FOR SANCTION OF FACTORING
UNDER “PURCHASE BILL FACTORING”
ARRANGEMENT.
• 2. FACTOR ASSESSES THE LIMIT AND
CONVEYS SANCTION
• 3. CLIENT ADVISES THE SUPPLIER / S
ABOUT THIS ARRANGEMENT

47. PURCHASE BILL
FACTORING SCHEME
• 4. THE SUPPLIER AFTER SUPPLYING
GOODS TO THE CLIENT, FORWARDS
THE DOCUMENTS TO CLIENT.
• 5. THE CLIENT AFTER ACCEPTING
HUNDIS, SUBMITS THE SAME TO
FACTOR WITH A COPY OF INVOICE
AND PROOF OF RECEIPT OF GOODS.

48. PURCHASE BILL
FACTORING SCHEME
• 6. POST DATED CHEQUE MUST
ACCOMPANY EACH HUNDI.
• 7. FACTOR SCRUTINIZES THE
DOCUMENTS AND EFFECTS
PAYMENT TO SUPPLIER.

49. PURCHASE BILL
FACTORING SCHEME
• 8. THE CHARGES ARE RECOVERED
BY FACTOR UPFRONT.
• 9. FACTOR RECOVERS AMOUNT
FROM CLIENT ON DUE DATE.

50. FACTORING
AGENCIES
• DOMESTIC
– SBI FACTOR
– CANBANK FACTOR
• EXPORT
– BARCLAYS
FACTORING
– EUROFACTROING
– SPEI FACTORING-
ROME
– CANBANK FACTOR

51. BAJAJ
EXPORTER
JOHN
IMPORTER
EXPORT
FACTOR
6
1
4 5
2
3
7
9
IMPORT
FACTOR
EXPORT FACTORING
7
8
9
10
7

52. EXPORT FACTORING
• 1. EXPORTER PROVIDES EXPORT
FACTOR (EF) WITH A LIST OF BUYERS
(WITH FULL DETAILS) AND CREDIT
REQUIREMENTS.
• 2. EXPORT FACTOR RUNS A CHECK
ON EACH BUYER THROUGH A
FACTOR IN THE BUYER’S COUNTRY.

53. EXPORT FACTORING
• 3. THIS IMPORT FACTOR (IF) WILL
RATE BUYER AND REPORT TO
EXPORT FACTOR
• 4. BASED ON IMPORT FACTOR’S
REPORT, EXPORT FACTOR WILL
GRANT CREDIT LIMIT TO THE
EXPORTER FOR EACH BUYER.

54. EXPORT FACTORING
• 5. THE EXPORTER THEN ENTERS INTO
AN AGREEMENT WITH EXPORT
FACTOR, ASSIGNING RECEIVABLES
TO EXPORT FACTOR, WHO IN TURN
ASSIGNS THEM TO IMPORT FACTOR .
• 6. EXPORTER SHIPS GOODS, MAKING
INVOICE PAYABLE TO IMPORT
FACTOR.

55. EXPORT FACTORING
• 7. COPIES OF DOCUMENTS SENT TO
IMPORT FACTOR THROUGH EXPORT
FACTOR VIA BANKING CHANNELS.
• 8. EXPORT FACTOR MAKES PAYMENT
TO EXPORTER AGAINST
RECEIVABLES

56. EXPORT FACTORING
• 9. ON DUE DATES, BUYER PAYS TO
IMPORT FACTOR , WHO IN TURN
REMITS TO EXPORT FACTOR.
• 10. EXPORT FACTOR PAYS TO
EXPORTER NET OF FINANCE
EXTENDED.

57. FORFEITING
• TRADITIONAL EXPORTS
• PROJECT EXPORTS
– CIVIL SUPPLIES CONTRACT
– TURN KEY PROJECT
PRAJ EXPORTS
WALCHANDNAGAR INDUSTRIES
SRILANKA GOVT.

58. FORFEITING
• FEATURES OF PROJECT EXPORTS
– HIGH VALUE TRANSACTIONS
– DEFFERED REPAYMENT
– AMOUNT BLOCKED FOR 3-5 YEARS.
– RISKY AS COMPARED TO TRADITIONAL
EXPORTS.

59. FORFEITING
• REPAYMENT SCHEDULE(STANDARD)
– ADVANCE PAYMENT 10 %
– AGAINST SUPPLIES 25 %
– DEFFERED SEMI ANNUALY 60 %
– RETENTION MONEY 5 %
------------
TOTAL 100 %

60. FORFEITING
• PURCHASE OF SERIES OF CREDIT
INSTRUMENTS SUCH AS DRAFTS,
BILL OF EXCHANGE, PROMISSORY
NOTES ON A NON-RECOURSE BASIS.
• FORFEITER TAKES RESPONSIBILITY
FOR CLAIMING THE DEBT FROM
IMPORTER ON MATURITY

61. FORFEITING
• FORFEITING IS THE PURCHASE OF
AN EXPORTER’S TRADE
RECEIVABLES AT A DISCOUNT TO
FACE VALUE "WITHOUT
RECOURSE" TO THE EXPORTER.

62. FORFEITING
INFORMATION NEEDED BY FORFEITER
• DETAILS OF IMPORTER
• GOODS, CURRENCY & VALUE OF
CONTRACT
• CREDIT PERIOD
• NUMBER & TIMING OF PAYMENTS

63. FORFEITING
INFORMATION NEEDED BY FORFEITER
• INSTRUMENTS TO BE USED AS
EVIDENCE OF DEBT
• IDENTITY OF GUARANTOR OF
PAYMENT

64. FORFEITING
DOCUMENTS NEEDED FROM EXPORTER
• COPY OF CONTRACT
• INVOICE
• SHIPPING DOCUMENT
• AVALISED DEBT INSTRUMENT

65. FORFEITING
CHARGES
• COMMITMENT FEES
• DOCUMENTATION FEES
• DISCOUNTING FEES

66. FORFEITING
CHARGES
• CHARGES DEPEND ON
–INTEREST RATES
–COUNTRY RISK
–BANK WHO IS GUARANTEEING
PAYMENT
–PERIOD OF CREDIT

67. FORFEITING
ADVANTAGES TO EXPORTER
• ELIMINATES RISKS
–POLITICAL, TRANSFER &
COMMERCIAL
–PROTECTS FROM INCREASE IN
RATE OF INTEREST
–PROTECTS FROM EXCHANGE
RATE FLUCTUATIONS

68. FORFEITING
ADVANTAGES TO EXPORTER
• COMPETITIVE ADVANTAGE
–ENABLES TO PROVIDE
SUPPLIER’S CREDIT
–ENABLES TO DO BUSINESS IN
COUNTRIES WHERE CREDIT RISK
OTHERWISE WOULD BE TOO
HIGH

69. FORFEITING
ADVANTAGES TO EXPORTER
• IMPROVES CASH FLOW
–CONVERTS A CREDIT BASED
TRANSACTION INTO A CASH
TRANSACTION
–BALANCE SHEET IS NOT
BURDENED AY ACCOUNTS
RECEIVABLES, BANK LOANS OR
CONTIGENT LIABILITIES

70. FORFEITING
ADVANTAGES TO EXPORTER
• PROVIDES TRANSACTION SPEED &
SIMPLICITY
–DOCUMENTATION IS USUALLY
CONCISE & STRAIGHTFORWARD
–RELIEVES FROM
ADMINISTRATIVE &
COLLECTION PROBLEMS

71. FLOWCHART OF FORFEITING TRANSACTION
BAJAJ
EXPORTER
JOHN
IMPORTER
EXPORTER’S
BANK
IMPORTER’S
BANK
EXIM BANK FORFAITING
AGENCY
1
2
3 & 4
5
6
7
7
7
7
8
8
9
9
9
10
11

72. FORFEITING
FLOWCHART
• 1.COMMERCIAL CONTRACT
BETWEEN THE FOREIGN BUYER &
THE INDIAN EXPORTER
• 2.EXPORTER GIVES INFORMATION TO
EXIM BANK FOR SELECTING
FORFAITER
• 3.EXIM BANK CALLS FOR QUOTES
FROM VARIOUS FORFEITERS

73. FORFEITING
FLOWCHART
• 4. EXIM BANK AWARDS
TRANSACTION TO THE FORFEITER
WHOSE QUOTES ARE BEST
• 5. COMMITMENT FROM FORFEITER
TO FORFEIT DEBT INSTRUMENTS
• 6. DELIVERY OF GOODS BY
EXPORTER TO IMPORTER

74. FORFEITING
FLOWCHART
• 7. ACCEPTANCE OF DEBT
INSTRUMENTS BY IMPORTER & HIS
BANK. AND DELIVERY OF DEBT
INSTRUMENTS TO EXPORTER
• 8. ENDORSEMENT OF DEBT
INSTRUMENTS BY EXPORTER IN
FAVOUR OF FORFEITER

75. FORFEITING
FLOWCHART
• 9. CASH PAYMENT OF DISCOUNTED
DEBT INSTRUMENT
• 10. PRESENTATION OF DEBT
INSTRUMENTS ON MATURITY BY
FORFEITER TO IMPORTER
• 11. PAYMENT OF DEBT INSTRUMENTS
ON MATURITY.

76. FORFEITING
AGENCIES
• 1) BRITISH AMERICAN FORFEITING
COMPANY
• 2) WESTDEUTSCHE LANDESBANK
• 3) MEZRA FORFEITING AGENCY
• 4) WEST MERCHANT BANK

77. FACTORING V/S FORFEITING
• MAINLY SHORT
TERM TRADE
• WITH RECOURSE
BASIS
• ON STRENGTH OF
SALES INVOICE
COPIES
• MAINLY LONG
TERM TRADE
• WITHOUT
RECOURSE BASIS
• ON STRENGTH OF
AVALISED DEBT
INSTRUMENT

78. FACTORING V/S FORFEITING
• POSSIBLE UP TO
80 % OF SALE
VALUE
• DONE ON
TURNOVER BASIS
• NO FOCAL POINT
• POSSIBLE UP TO
100 % OF SALE
VALUE
• DONE ON
TRANSACTION
BASIS
• TRANSACTIONS
TO BE ROUTED
THROUGH EXIM
BANK

79. COUNTERTRADE
• COUNTERTRADE INVOLVES A
RECIPROCALAGREEMENT FOR THE
EXCHANGE OF GOODS OR SERVICES.
• THE RECIPROCAL AGREEMENTS CAN
TAKE A NUMBER OF FORMS

80. COUNTERTRADE
• 1) BARTER
• 2) COUNTERPURCHASE
• 3) INDUSTRIAL OFFSET
• 4) BUYBACK
• 5) SWITCH TRADING

81. COUNTERTRADE
BARTER TRADE
• THIS IS THE SIMPLEST FORM OF
COUNTERTRADE.
• IT INVOLVES THE DIRECT
EXCHANGE OF GOODS FROM ONE
COUNTRY FOR THE GOODS OF
ANOTHER.
• NO MONEY CHANGES HAND.

82. COUNTERTRADE
COUNTERPURCHASE
• SELLER AGREES WITH THE BUYER
EITHER TO
– MAKE PURCHASES FROM A COMPANY
NOMINATED BY THE BUYER
OR
– TAKE PRODUCTS FROM THE BUYER
IN THE FUTURE

83. COUNTERTRADE
INDUSTRIAL OFFSET
• INVOLVES RECIPROCAL
AGREEMENTS TO BUY MATERIAL OR
COMPONENTS FROM BUYING
COMPANY OR COUNTRY.

84. COUNTERTRADE
INDUSTRIAL OFFSET
• A MILITARYAIRCRAFT
MANUFACTURER AGREES TO BUY
ENGINES FOR ALL ITS PLANES FROM
A FOREIGN PRODUCER IF IT AGREES
TO BUY A LARGE NUMBER OF
AIRCRAFTS.

85. COUNTERTRADE
BUYBACK
• THE SELLER OF CAPITAL EQUIPMENT
AGREES TO BUY THE PRODUCTS
MADE WITH THE EQUIPMEMNT IT
SUPPLIES.

86. COUNTERTRADE
SWITCH TRADING
• A BRITISH FIRM HAS RECEIVABLES
FROM IMPORTER IN GERMANY
• IT HAS TO IMPORT MACHINERY FROM
JAPAN.
• THE BRITISH FIRM WILL PAY JAPANESE
FIRM WITH ITS GERMAN CREDIT.
• JAPANESE FIRM MAY AGREE IF IT HAS
TO IMPORT SOMETHING FROM
GERMANY.

87. COUNTERTRADE
REASONS
• 1) THE BUYER DOES NOT HAVE
ACCESS TO CONVERTIBLE
CURRENCY.
• 2) IT PROMOTES EXPORTS.
• 3) IT IS A WAY OF OVERCOMING
PROBLEMS CAUSED BY MISPRICED
GOODS OR CURRENCIES.( OIL AND
WHEAT)

88. MERCHANTING TRADE
• THE MERCHANTING TRADE IS THE
TRANSACTION WHICH DOES NOT
INVOLVE ANY FOREIGN EXCHANGE
OUTLAY FROM INDIA .

89. MERCHANTING TRADE
• A MERCHANTING TRANSACTION
INVOLVES THE MOVEMENT OF
GOODS BETWEEN COUNTRIES
OTHER THAN INDIA

90. MERCHANTING TRADE
• BUT AN INDIAN MERCHANT IS
RESPONSIBLE FOR RECEIVING THE
PROCEEDS FROM THE FOREIGN
BUYER, AS WELL AS MAKING THE
PAYMENT TO THE OFFSHORE
SUPPLIER

91. MERCHANTING TRADE
• SHIPMENT TAKES PLACE DIRECTLY
FROM THE COUNTRY OF THE
SUPPLIER TO THE FOREIGN-END
BUYER. THE IMPORTED GOODS DO
NOT NECESSARILY ENTER INDIAAT
ALL.

92. MERCHANTING TRADE
• AUTHORISED DEALERS SHOULD
ENSURE THAT:
• I) THE LIABILITY FOR THE
IMPORT LEG OF THE
TRANSACTION IS EXTINGUISHED
BY THE PAYMENT RECEIVED FOR
THE EXPORT LEG OF THE
TRANSACTION WITHOUT DELAY

93. MERCHANTING TRADE
• II) THE ENTIRE MERCHANT TRADE
TRANSACTION IS COMPLETED
WITHIN A PERIOD OF 6 MONTHS