Factoring is a financial Commission operation at which the client assigns the receivables factoring company for the purpose of:
without more of the payment;
- guarantee full repayment of the debt;
reduction of expenses on the maintenance of accounts.
In factoring involves 3 parties:
1. Supplier of products (the original creditor)
2. Buyer products
3. A Bank or factoring company (the secondary lender)
There are following types of factoring:
1. the factoring agreement is open – it's a transaction, at the conclusion of which the debtor is notified about this transaction, it forwards your payments to the Bank
2. factoring agreement closed type –the transaction about which the debtor is not notified, and the Bank itself credits received from payments on your account
3. external –a transaction in which at least one of the participants is outside the Republic of Belarus
4. internal – transaction where all the participants are residents of the Republic of Belarus
5. factoring with recourse – an agreement in which the Bank is entitled to charge the supplier a refund of paid amount if the invoice is not paid by the debtor
Factoring services are not subject individuals:
1. recognized bankrupt by the court.
2. having large amounts of receivables.
3. enclosing with their customers long-term contracts, performance and payment which is made in stages.
4. selling their goods on terms of barter.
5. individuals, branches and departments of banks.
At the conclusion of the factoring agreement, the client must prove:
-availability of cash requirements. For this you need to submit the contract with the debtor, proof of delivery of the goods (waybills, acts), invoices, etc.;
-the ability of the debtor to pay the debt. The supporting documents determined by the Bank.
A Commission, which is charged by the Bank for its factoring services, consists of several parts:
- a fixed fee for processing each document (delivery);
fee for factoring services, expressed as a percentage of the amount of the assigned debt;
Commission (as a percentage of the debt) for providing the funds. She is taken for each day from the payment Bank debt to the client until final settlement with the buyer.
The advantages of factoring as a method of financing compared to a loan:
1).Does not require collateral.
2) the amount of financing is unlimited.
3) the Amount of financing may increase as may the growth of sales to the customer.
4) Funding is provided for the term actual deferral of payment (trade credit).
5) the Deadline for receipt of funds from the date of submission of the application is significantly shorter.
6) the Financial agent does not analyse the financial and economic activities of the client.
7) the Amount of funding pays the factor, the client and its debtors.
8) Saving on unnecessary costs associated with obtaining a Bank loan. Unlike Bank lending in factoring services, getting funding for its sales, the supplier ceases to bear the following costs:
a) interest on the loan;
b) income tax on interest exceeding the rate of the Central Bank +3%;
C) the costs of processing the loan, which includes the registration and insurance of collateral, payment of staff time for registration and preparation of documents for the credit Department, notifying the tax office of the intention to open the loan account, etc.
g) costs associated with an unexpected increase in interest rates in the country;
d) the costs of the emergency mobilization of funds at the maturity of the loan or the payment of interest, including loss of profits associated with the withdrawal of these funds from circulation.
Thus, while financing under factoring completely solved the problem of formation of circulating assets of an enterprise, eliminates the need for the search of collateral for the loan in the Bank and, accordingly, does not occur growth in accounts payable (as part of increasing the investment attractiveness of the enterprise).
In addition, factoring financing is more targeted than the traditional loan orientation: the company shall pay interest for the exact period of time when he really needs the money. The calculation of effective interest rates when lending and factoring shows that service when factoring could be even cheaper, despite the higher nominal rate.
It should be noted that given the specifics of the particular businesses can really be claimed only considered part of the benefits of factoring.