Factoring is a service that covers the financing and collection of account receivables in domestic and international trade. It is an ongoing arrangement between the client and Factor, where invoices raised on open account sales of goods and services are regularly assigned to "the Factor" for financing, collection and sales ledger administration. The buyer and the seller usually have long term relationships. The client sells invoiced receivables at a discount to the factor to raise finance for working capital requirement. The factor may or may not accept the incumbent credit risk. Factoring enables companies to sell their outstanding book debts for cash. The factor operates by buying from the selling company their invoiced debts. These are purchased, usually with credit protection, by the factor who then will be responsible for all credit control, collection and sales accounting work. Thus the management of the company may concentrate on production and sales and need not concern itself with non-profitable control and sales accounting matters. By obtaining payment of the invoices immediately from the factor, usually up to 80% of their value the company's cash flow is improved. The factor charges service fees that vary with interest rates in force in the money market
Domestic Factoring
Through this product, our intention is to be an active partner in the management of your company's supply/delivery chain. Through domestic factoring, we could look at financing your receivables from your buyers. Additionally we also undertake to finance your vendor/supplier payments.Receivables Finance can be structured with on a With Recourse Basis (where we would be setting up lines on your company) or on a Without Recourse Basis.Payments of all your service and utility bills could be done through our Vendor Finance product. These could include for example, courier payments, electricity bills payments. Through this mechanism we will pay out your service provider on the due date of the invoice/bill and collect the money from you after a pre-determined credit period.
International Factoring
In international factoring there are usually two factors. The export factor looks at financing the exporter and sales administration (presenting invoices at the right time, collecting payments being the key tasks). The import factor is interested in evaluating the buyer, collecting the money on time at the same time ensuring that he is protected against default.International factoring encompasses all the four services, that is, pre-payments, sales ledger administration, credit protection and collections
7 - Step Guide to International Factoring:The importer places the order for purchase of goods with the exporter. The exporter requests the Export Factor for limit approval on the importer. Export Factor in Turn forwards this request to an Import Factor in the Importer's country. The Import Factor Evaluates the Importer and conveys its approval to the Export Factor who in turn conveys Commencement of the Factoring arrangement to the Exporter. The exporter delivers the goods to the importer. Exporter produces the documents to the Export Factor. The Export Factor disburses funds to the Exporter upto the prepayment amount decided and at the Same time the forwards the documents to the Import factor and the Importer. On the due date of the invoice, the Importer pays the Import Factor, who in turn remits this Payment to the Export Factor. The Export Factor applies the received funds to the outstanding amount of the advance against The invoice. The exporter receives the balance payment.
In the international product suite, apart from the existing export-factoring product, we are now poised to launch import factoring as well. That will make us the first and only Bank offering the entire bouquet of factoring products to customers in India.
Distributor Finance Programme (DFP) to set up a financing and collection arrangement for your delivery chain.The credit worthiness of distributors is established independently by THE Financing BANK and credit limits are set up on each distributor. Regular MIS from the bank's end to both you and your distributors ensures that the sales ledger remains updated at all times and frees Client from reconciliation issues.This approach is to provide value-added services over and above the basic funding against your receivables from the channel. This allows you to focus the efforts of your sales team on actual sales rather than collection.
ForfaitingIT is when a bank arrange for an offshore financing on your export receivables to countries esp. high / medium risk with medium to long credit periods.Forfaiting can be structured and executed non-recourse as off balance sheet facilities world-wide using bills of exchange, letters of credit, guarantees and formal loan agreements
