FACTORING(English factoring) - a kind of trade and commission operation, combined with lending to the client's working capital, a type of financial services provided by commercial banks, their subsidiary factor firms to small and medium-sized firms (clients). The essence of the services is that the factor firm acquires the right to collect debts from clients and partially pays the clients claims against their debtors, returning debts in the amount of 70 to 90% before the due date for their payment by the debtor. The rest of the debt, minus interest, is returned to customers after the debtor repays the entire debt. As a result, the client of the factor firm gets the opportunity to repay debts faster, for which he pays a certain percentage to the factor firm. When factoring is carried out, the client transfers his right to receive a debt from the debtor to the factor firm. Factoring arose in the XVI-XVII centuries. as an operation of resellers, and then acquired the form of lending.
Compared to lending, factoring has a number of significant advantages:
1. Collateral. Unlike lending, where in most cases mandatory material collateral is required (fixed assets, goods in circulation, raw materials, etc.), in factoring operations, the company's accounts receivable act as collateral.
2. Assessment of the financial condition. Strict requirements for the financial condition of the company and the quality of financial statements have less effect on the positive decision of the issue in factoring than in lending. Factoring companies are more interested in the quality and diversification of supplier receivables.
3. Flexible scheme of work. Unlike lending, factoring does not tie the hands of financial directors in such a way with rigid time frames (in lending, a one-time or according to an approved schedule is used to draw down credit funds and similar repayments). Factoring financing is carried out upon shipment of goods to approved debtors and in fact in proportion to the volume of sales. Repayment of factoring financing is carried out at the time of payment for the shipped goods by debtors.
4. High sales growth rates. More "flexible" and permanent financing in factoring, together with effective management of receivables, allows you to increase the company's turnover at a faster pace. Upon shipment of the goods to the approved debtors, 90% of the amount of each delivery is financed. Thus, the volume of financing grows in proportion to the volume of sales.
Even the simplest calculations show that, under equal conditions, factoring makes it possible to increase turnover twice as fast in one year as compared to lending to replenish working capital. Using factoring with the receipt of financing from the Factor immediately after the shipment of the goods, you will always have funds for the production / purchase and sale of the goods, without waiting for payment from buyers for the previously shipped goods.
In addition, factoring is not only financing. A full range of factoring services involves managing receivables, covering a number of risks (loss of liquidity, credit, inflation, currency), information and analytical services (special IT that allows you to control the movement of funds, the current state of receivables, payment discipline of buyers, plan daily financial flows companies and generate analytical reports for management decisions). These services form the added value of factoring, which distinguishes factoring from conventional lending.
Comparative characteristics of factoring, credit and overdraft
| Factoring | Credit | Overdraft |
|---|---|---|
| It is repaid from the money received from the client's debtors. | Returned to the Bank by the borrower | Returned to the Bank by the borrower |
| Paid for the period of actual payment deferral (up to 90 - 120 calendar days) | Issued for a fixed period. | Rigid terms for the use of the tranche are established, as a rule, not exceeding 30 days |
| Paid on the day the goods are delivered | On the date stipulated by the loan agreement | The term of the contract is limited |
| The transition of the company to cash management services in the Bank is not required | Provides for the transition of the borrower to settlement and cash services in the Bank | |
| No collateral required | It is issued on security and provides for turnover on the current account, adequate to the loan amount | It is envisaged to maintain a certain turnover (5:1) on the current account. No collateral required |
| The size is not limited and can increase as the client's sales volume grows. | Issued for a predetermined amount | The limit is set at the rate of 15-50% of the monthly loan proceeds to the borrower's current account |
| It is repaid on the day of actual payment by the debtor of the delivered goods | Payable on a predetermined date | All credit receipts are automatically debited from the current account to pay off the overdraft and interest on it |
| Factoring financing is paid automatically upon presentation of the delivery note and invoice | To get a loan, you need to draw up a huge number of documents | To obtain an overdraft, it is necessary to draw up a large number of documents |
| Continues indefinitely | Redemption does not guarantee a new | |
| Accompanied by a service that includes: receivables management, coverage of risks associated with deliveries on a deferred payment basis, consulting and much more | When lending, in addition to providing funds to the client and RKO, the Bank does not provide the borrower with any additional services | In case of an overdraft, in addition to providing funds to the client and RKO, the Bank does not provide the borrower with any additional services |
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Commission - intermediary operations performed by banks on behalf of customers for a fee - commission. This group of banking operations is called services. I distinguish between settlement services related to the implementation of domestic and international settlements, trust services for the purchase and sale by a bank on behalf of clients of securities, foreign currency, precious metals, mediation in the placement of shares, bonds, accounting, consulting services, etc.
In the activities of banks, the following types of commission-intermediary operations are widely used:
In a leasing transaction, as a rule, three parties are involved: the equipment supplier, the lessor and the lessee. The meaning of the leasing transaction is such that the bank (as a lessor) acquires at its own expense property (fixed assets) from the equipment supplier, providing him with 100% payment and retaining ownership, transfers this equipment for temporary use to the lessee on the terms of receiving lease payments from the lessee (leasing payments).
To resolve the issue of financing, the bank studies the level of profitability of the client, makes an expert assessment of the possibility of correct and efficient use of the leasing object.
The main elements of leasing are:
object of leasing - material assets that are not destroyed during one production cycle;
subjects of leasing - the parties involved in the leasing transaction (lessor, lessee and supplier);
term of leasing - the period of validity of the leasing agreement.
leasing payments - a payment made by the lessee to the lessor for granting the right to use the object of leasing. When determining lease payments, the following are taken into account: depreciation, payment for resources attracted by the lessor to carry out the transaction, leasing margin (1-3%), risk premium, the amount of which depends on the level of various types of risks borne by the lessor.
There are the following classification of forms of leasing:
according to the composition of the participants:
direct, in which the owner of the property independently leases the object (bilateral transaction);
indirect, when the transfer of property occurs through an intermediary (tripartite and monolateral transaction);
leaseback is a special case of direct leasing, the essence of which is that the leasing company acquires equipment from the owner and leases it to him.
for the object of leasing:
leasing of movable property;
leasing of real estate;
leasing of property that was in operation.
maintenance of the leasing object:
full leasing - a type of leasing in which the lessor provides a full range of services for servicing the leasing object;
net leasing - a type of leasing in which all costs for servicing the leasing object are borne by the lessee;
leasing with a partial set of services - leasing, in which the lessor provides for the leasing object only certain types of services for servicing the leasing object.
by degree of payback:
financial leasing - assumes that during the period of the leasing agreement the lessee pays the lessor the entire cost of the leased property (full depreciation);
operational leasing - assumes that the assignment of property is carried out for a period less than the depreciation period. As a rule, the contract is concluded for a period of 2 to 5 years.
Factoring operations of the bank are associated with unpaid settlement documents (invoices) arising between producers and consumers in the process of selling goods and services, i.e. collection of customer accounts receivable.
The factoring operation of the bank is based on the purchase by the bank of invoices (payment requests) of the supplier for the shipped products and the transfer by the supplier to the bank of the right to demand payment from the buyer of the products. Therefore, factoring operations are also called supplier sales credit or supplier factoring credit.
There are two types of factoring: conventional (open) - the supplier indicates on his invoices that the claim has been sold to the factor firm; confidential (hidden) - none of the supplier's counterparties are aware of the crediting of its sales by the factoring company.
Factoring customer service is carried out on a contractual basis. Prior to the conclusion of the contract, the factoring department of the bank analyzes the creditworthiness of the supplier, collects and studies information on the financial condition of its debtors.
In order to reduce the risk of factoring operations from the position of the bank, the supplier must meet the following requirements:
produce products and services that are in demand and of high quality;
have stable production growth rates;
apply firmly established conditions for the sale of manufactured products.
To conclude a factoring agreement, the supplier must send information to the bank about the transferable payment claims:
the name and address of each payer and the conditions for the sale of products to him;
the planned amount of all assigned claims;
the amount of the existing debt of each payer and data on the verification of his accounts;
other information necessary to assess the status of settlements between the buyer and the supplier for debt collection, etc.
For the provision of a factoring loan, the bank collects from its client a commission fee, which consists of:
Loan fee. Its size is determined for the period between receipt of payment from the factoring department and the date of receipt of payment from the payer on the basis of the debit balance on the supplier's account.
Service charge. It is calculated as a percentage of the invoice amount. Its value depends on the volume and structure of production activities and the creditworthiness of its customers (from 0.5 to 3%).
Bank forfeiting is the purchase by a bank of a debt denominated in a negotiable instrument, such as a bill of exchange or promissory note, from a creditor on a non-recourse basis. This means that the buyer of debt (forfaitor) assumes the obligation to waive his right to apply a regressive claim to the creditor if it is impossible to obtain satisfaction from his debtor. In this regard, the purchase of a negotiable obligation occurs at a discount.
Forfaiting is a kind of lending to exporters, sellers in the sale of goods, most often used in foreign trade transactions. So, for example, a forfaitor (usually a bank plays its role) redeems from the exporter (seller) the monetary obligation of the importer (buyer) to pay for the goods he bought immediately after the delivery of the goods and himself makes early, full or partial payment (usually 70-90 %) of the value of the goods to the exporter. Subsequently, the funds are transferred to the bank-forfaitor in payment for the goods, paid by the importer (buyer), notified that the forfaitor made the payment for it. For early payment, the forfeitor bank charges interest from the exporter.
The forfaiting mechanism is used in two types of transactions:
in financial transactions - in order to quickly realize long-term financial obligations;
in export transactions to facilitate the flow of cash to an exporter who has provided a loan to a foreign buyer.
Forfaiting period ranges from 180 days to 5-7 years.
Forfaiting contracts are concluded primarily in euros and US dollars.
A forfaiting transaction is carried out in several stages:
preparation of the transaction - the exporter's application is considered by the forfaitor;
collection of information about the proposed transaction: term, amount, currency, information about the importer and exporter and their location;
conducting a credit analysis by a forfaitor based on the information provided and setting a price for this service;
preparation by the exporter of a series of bills of exchange and guarantees on them.
Compared to leasing, forfaiting is characterized by simpler documentation. At the same time, forfaiting operations are distinguished by a high level of risk for the bank, therefore, when conducting this type of operation, the bank pays special attention to hedging and the risk management system.
As financial assets increased in industrialized countries, banks began to provide fiduciary trust operations (trust - from the word trust).
Trusts are departments of commercial banks that act on behalf of clients as a trustee and carry out operations related mainly to property management, as well as perform a number of other services.
Banks make fiduciary transactions for individuals, businesses, firms, charitable companies and other institutions.
In general, trust operations can be divided into three types:
Inheritance management - by agreement of individuals, it involves the fulfillment of a number of duties by the executor of the trust department of the bank. The main ones are, in accordance with a written will or by order of the court, to collect and secure the assets of the heir, pay administrative expenses, debts, taxes, distribute property among heirs and provide personal services to family members.
Performance of operations by proxy and in connection with guardianship - the performance by employees of the trust departments of a commercial bank of guardianship functions over minors, incapacitated persons. The most common option is proxy transactions related to the management of property on a trust basis. They arise as a result of an agreement between the principal and the trustee and are associated with the transfer of property to the trustee, who then owns it and disposes of it in the interests of the principal. At the same time, the bank can store property, invest, dispose of the principal amount and income in accordance with the terms of the agreement.
Agency services - trust departments of commercial banks perform the functions of an agent. If the transactions involve property, then the right of ownership and control remains with the owner. The main services are the preservation and disposal of assets, property management, legal services and other agency services.
For trust operations, banks also receive a commission, the amount of which in most cases is determined on a contractual basis, since the amount of work varies by type of operation. The commission may consist of an annual deduction from the income of the trust, an annual contribution from the principal amount and, in some cases, from the principal amount at the end of the trust agreement. At the same time, the bank must take into account that the volume of trust operations should be such as to recoup the costs associated with these operations and ensure the bank receives a profit.
Glossary:
The active operations of the bank are the operations of the bank, through which banks allocate the resources at their disposal to generate profit and maintain liquidity.
Guarantee transactions - bank operations for issuing (guaranteeing) the payment of customer debt to a third party upon the occurrence of certain conditions; generate fees for banks.
Credit (loan) - operations of the bank to provide (issue) funds to the borrower on the basis of urgency, repayment and payment.
Leasing is a long-term lease. Banks lease various types of movable and immovable property to enterprises and enter into leasing agreements with them.
Factoring - (English factoring from factor - agent, intermediary) - is a kind of trade and commission operation, combined with lending to the client's working capital.
Bank forfeiting is the purchase by a bank of a debt denominated in a negotiable instrument, such as a bill of exchange or promissory note, from a creditor on a non-recourse basis.
world monetary system is a mechanism linking individual national economies into a single world economy. It is designed to create favorable conditions for the development of economic cooperation between countries.
MVS must meet the following requirements:
Provide international economic relations with a sufficient number of means of payment capable of performing the role of world money;
Have sufficient stability for a long time;
Be flexible, adapt to changing conditions of international economic turnover;
Ensure that all participants in international economic relations have a balance of their interests in the monetary sphere.
The nature of the IWS is determined by the development of international economic relations, national monetary systems, the alignment of forces on the world stage, and the national interests of the leading states. As a result, the MVS is constantly changing. The evolution of the IAM repeats the transformation of the internal monetary circulation in a specific form and with a significant lag. MVS is a form of organization of currency relations, which has developed historically and is enshrined in an agreement between countries. It is a code of conduct for both private subjects of foreign exchange transactions and countries in general.
MVS assumes the presence of the following majorelements:
international means of payment that play the role of world money;
conditions and regimes of convertibility of currencies;
mechanism and regime of exchange rates;
forms of international payments;
credit instruments of circulation and the procedure for their use in international settlements;
international liquid assets and the procedure for their regulation;
regime of international currency and gold markets and interstate institutions regulating currency relations.
The main element of any monetary system is international means of payment that perform the role of world money within this system. As already mentioned, gold, reserve currencies, international currency units act as international means of payment at different stages of the development of a market economy. By its very nature, only gold can fulfill the role of world money, since it has its own value and therefore ensures the final repayment of debts. However, under the dominance of fiat credit money, this function is taken over by reserve currencies.
Reserve currencies- these are currencies with full convertibility, belonging to countries that occupy a dominant position in world production, trade, have an extensive strong credit system, a developed financial market, and significant amounts of international liquidity. In modern conditions, such currencies are the US dollar, the Japanese yen, the British pound sterling, the German mark and the French franc. Reserve currencies have no intrinsic value of their own, are debt obligations of central banks that issue these currencies, and therefore only transfer debts from one country to another. The rate of reserve currencies depends entirely on the state of the national economy. In addition, the status of a reserve currency gives the issuing country the opportunity to pay the balance of payments deficit with its own currency and thus live on credit. These shortcomings of reserve currencies led to the emergence of artificially created world money SDR and ECU, on the basis of which the euro arose today.
Euro -common currency of the countries of the European Monetary Union (EMU). The euro is issued by the European System of Central Banks (ESCB), which is formed by the supranational European Central Bank (ECB) and the national central banks of the EMU member states. Since the introduction of the euro into circulation is designed for a fairly long period of time, the main criterion for issuing the euro is the demand for it. The value, or exchange rate, of the euro is determined by the principle of a “currency basket”, which includes the currencies of all countries in the euro area. The euro is the single currency of the zone, designed primarily to serve private turnover and only then be used as an instrument for repaying international debt obligations; It was put into circulation in 1999.
The nature of the international means of payment used determines such important elements of the monetary system as convertibility, exchange rate, international liquid assets, etc. In conditions when gold plays the role of world money, all currencies are absolutely convertible, the exchange rate is formed on the basis of the ratio of weight quantities of gold in each currency and is stable and fixed. With the transition to the use of reserve currencies, the convertibility of currencies and the exchange rate begin to depend on the state of the economy in the country. The currency can be fully convertible, partially convertible and non-convertible, and the exchange rate can be fixed or floating. The nature of the international means of payment, the corresponding convertibility regime and the exchange rate regime determines the type of the world monetary system.
Exchange rate. Factors of its formation
Exchange rate is the price of one country's currency expressed in another country's currency. If we adhere to the labor theory of value and assume that the price is based on the value of the commodity, then it is obvious that the exchange rate must have its own cost basis and, like the price of any other commodity, fluctuate around this basis depending on the demand for the currency and its value. offers.
Under the gold standard, the existence of such a cost basis for the exchange rate was obvious. The rate-forming factor was the weight content of the metal in monetary units. Immediate exchange rate cost basis- currency or monetary parity, representing the ratio of the weight of gold in the monetary unit of one country to the weight content of gold in the monetary unit of another country. Since, under gold circulation, the weight content of gold in the monetary unit is stable, and the monetary parity was stable. Consequently, the value basis of the exchange rate itself was also stable. However, the exchange rate was not stable. It, like the price of ordinary goods, fluctuated around a stable monetary parity, depending on the supply and demand for the currency.
With the transition to paper money, which cannot be exchanged for gold, the visible basis for the formation of the exchange rate disappears. Under these conditions, there are several theories of the exchange rate. The most common and justified theory of the exchange rate is currently theory purchasing power parity (PPS). Unlike other theories, it quite accurately determines the movement of the exchange rate in the long run. At the same time, the PPP theory is also acceptable from the standpoint of the labor theory of value, which considers the purchasing power of a currency as a reflection of the value that it really represents. Credit money, serving today the process of circulation, has an exchange value or purchasing power. The purchasing power of the currency in relation to goods in the domestic market isthe cost basis for currency exchange. In other words, if a certain set of goods costs $100 in the USA and 3193 rubles in Russia, then the proportion of the exchange of dollars for rubles will be $1 = 31.9 rubles. Thus, in modern conditions, currency parity acts as the purchasing power parity of currencies. It is the cost basis on which the market exchange rate is formed. At the same time, the PPP determines only the exchange proportions of the exchange of currencies, and not their cost content.
The strength and constancy of the various factors that determine the exchange rate change all the time. However, under any circumstances the most significant factors are the dynamics of GDP, inflation, money supply, balance of payments.
The most important factor in the formation of the exchange rate of the national currency- dynamics of GDP. It is she who determines its cost content, and according to the theory of pure competition, an increase in the country's GDP by 1% leads, other things being equal, to a rise in the price of the national currency by 1%. The decline in GDP causes a corresponding depreciation of the currency. An equally important factor in the formation of the exchange rate is money supply circulating in the country (M 2). A direct result of the contraction of the money supply is the fall in prices and the appreciation of the national currency. An increase in the money supply leads to an increase in prices and depreciation of the national currency. According to the theory, a 1% change in the money supply always causes a corresponding change in the exchange rate.
The formation of the exchange rate is always strongly influenced by inflation rate. Inflationary depreciation of money in a country causes a decrease in purchasing power and a tendency for their exchange rate to fall against the currencies of countries in which the inflation rate is lower. The higher the rate of inflation in a country, the lower the exchange rate. The inflation rate is also determined by the inflation expectations of the population. In anticipation of a change in the exchange rate under the influence of inflation, both rush demand and a massive flight from the currency can occur, resulting in an unjustified overvaluation or undervaluation of the exchange rate. In the formation of the exchange rate of the national currency, an important role is played by employment factor, which is characterized by the unemployment rate. At the same time, the unemployment rate and the exchange rate are inversely related. An increase in unemployment leads to a decrease in the exchange rate, as it causes a decrease in GDP, a decrease in unemployment results in an increase in the exchange rate of the national currency due to GDP growth.
One of the most important factors that determine the exchange rate is payment balance , since it acts as the final document of all foreign economic activity of the country for a certain period and directly determines the volume of supply of currency in the market and the demand for it. Traditionally, those items of the balance of payments that reflected current operations, and in particular the results of trade, had the greatest influence on the formation of the exchange rate. The deficit of the trade balance, as a rule, indicates the low competitiveness of national goods in the world market and the attractiveness of foreign goods for the citizens of this country. In this case, the demand for foreign currency significantly exceeds its supply, there is a steady downward trend in the exchange rate of the national currency. With a trade surplus, the situation is reversed. In modern conditions, the movement of capital has an increasing influence on the formation of the exchange rate.
Payment balance- the balance sheet of a country's international operations in the form of a ratio of foreign exchange receipts from abroad, and payments made by this country to other countries.
The balance of payments compiled according to the IMF methodology include not only receipts and payments that have actually been made or should be made immediately, but also future payments on international claims and obligations, i.e. elements of the balance sheet.
Estimated balance- the ratio of currency requirements and obligations of a given country to other countries - is practically not compiled, with the exception of some analytical studies, since with the modern accounting system it is difficult to separate actually made payments from future ones. However, in addition to the balance of payments, a balance sheet of the country's international assets and liabilities is drawn up, which characterizes its international monetary and financial positions.
There is a difference between the balance of payments for a certain date (in the form of a daily changing ratio of receipts and payments) and the balance for a certain period (based on statistical indicators of transactions, for example, for a month, quarter, year).
The balance of payments includes two main sections:
current transactions (balance of trade - the ratio between exports and imports of goods; the balance of "invisible" transactions, including services and non-commercial payments);
transactions with capital and financial instruments (shows the import and export of public and private capital, the receipt and provision of international loans).
The balance of payments occupies a significant place in the system of macroeconomic indicators. When determining GDP and national income, the net balance of international claims and liabilities is taken into account.
Traditionally, to pay off the balance of payments deficit, if payments exceed foreign exchange earnings, foreign loans and capital imports are used. This is a temporary method of covering the deficit of the balance of payments, since the debtor countries are obliged to pay interest, dividends and the principal amount of the loan. Attracting foreign loans to cover the passive balance of payments gives rise to the problem of settling external debt.
The final method of covering the deficit balance of payments is the use of the country's official gold and foreign exchange reserves.
An auxiliary means of covering the passive balance of payments may be the sale of foreign and national securities abroad. Official development assistance in the form of subsidies, gifts, and loans also serves as such a means.
The state of the country's balance of payments depends on the rate of economic growth, inflation, exchange rate dynamics, the country's place in the world economy, world market conditions, the political situation, emergency circumstances. In turn, the state of the balance of payments affects the dynamics of the exchange rate, gold and foreign exchange reserves, foreign debt, and the monetary and economic situation of the country as a whole. In this regard, the balance of payments is the object of not only market, but also state regulation. As already noted, the main part of the world payment turnover is connected not with trade, but with the movement of capital. That's why one of the most important exchange rate factors in modern conditions is the level of interest rates. The higher the level of the real interest rate, the more attractive is the investment of capital in the currency of a given state, if at the same time the reliability of these investments is ensured. The governments of various countries widely manipulate interest rates in order to influence the exchange rate of the national currency. State regulation of the exchange rate can be directed either at its increase or decrease, depending on the objectives of the monetary and economic policy and the real state of the economy. An increase in the exchange rate of the national currency is far from always beneficial to the state, as it reduces the competitiveness of national goods on the world market and stimulates imports, while a depreciation creates an incentive to expand exports and limits imports (this pattern is observed only if prices are elastic for both export and as well as imported goods).
The state has a great influence on the formation of the exchange rate. It exercises its influence on the exchange rate through emission and credit policies, price regulation, the introduction of taxes, duties, quotas on imported and exported goods, the issuance of licenses, and the publication of legislative and regulatory documents. An important factor affecting short-term fluctuations in the exchange rate is speculative transactions in the foreign exchange market. Thus, the formation of the exchange rate is the most complex economic process, which reflects the relationship of the state with the world market and its connection with the country's economy.
B. services and non-commercial payments, payments and receipts for transport and insurance operations, postal-telegraph and telephone communications, commission transactions, tourism, consumer transfers (salary, inheritance, scholarships, pensions), maintenance of diplomatic and trade missions, interest and dividends on capital investment, payments for licenses, exploitation of inventions and military spending abroad. In the statistics of most countries, these items, different in form and economic content, are combined into the general concept of invisible transactions.
Balance of services and non-commercial payments - payments and receipts for transport and insurance operations, postal and telegraph, telephone communications, commission transactions, tourism, cultural exchange, consumer transfers (salary, inheritance, scholarships, pensions), for the maintenance of diplomatic and trade missions, interest and dividends on investments, payments for licenses, exploitation of inventions and military spending abroad. In the statistics of the capitalist countries, these items, different in form and economic content, are combined into the general concept of "invisible transactions." The balance of foreign trade and the balance of non-commercial payment services form the current BALANCE OF PAYMENTS.
Factoring is an assignment to a bank of unpaid debt claims arising between counterparties in the process of selling products, and is a type of trade and commission operation combined with lending. In this case, we are usually talking about short-term requirements. The Bank acquires the right to demand payment from the buyer of the product. At the same time, it lends to the client's working capital and assumes the client's credit risk.
When the committents are the producers of the goods, they themselves bear the costs of both the manufacture and the transportation of the goods. If the committents resell goods manufactured at another enterprise, they pay the suppliers the cost of the goods and all transportation costs. In all cases, the committents finance the commission transactions until the completion of the settlements for the goods. In the event that the commission agent has to advance funds for market research, advertising, wages, the creation of distribution networks, all these expenses are ultimately reimbursed by the committent.
A variety of commission transactions are consignment transactions. This is a type of trade and intermediary operation, when the consignee (intermediary) sells the goods from his warehouse on the basis of a commission agreement. The consignment form of sale is used in case of poor market development or in the supply of new goods that are little known to local buyers. The consignee is usually the owner of warehouses and at the same time a merchant-wholesaler. His actions boil down to the fact that he accepts goods from the exporter for safekeeping with the aim of their subsequent sale, as a rule, in bulk. However, the obligation does not imply a sale, but only an offer of goods to a potential buyer at any opportunity. When an opportunity is missed, he usually bears the responsibility.
In connection with the introduction of bills of exchange into economic circulation, commercial banks can carry out a number of operations with them. They account for bills (or rediscount by the Central Bank of the Russian Federation), collect them, accept bills of exchange, aval bills, as well as commission transactions with them, etc.
To carry out a commission transaction, the holder of a bill submits an application to the bank with a request to accept a bill of exchange for a commission in order to receive payment. The application shall indicate the term of payment, the name of the payers, their addresses, the total number and amount of bills. Having accepted bills of exchange for collection, the bank is obliged to send them to the place of payment in a timely manner, notify the payer with a notice of receipt of bills for collection. In case of non-receipt of payment on bills of exchange, the bank is obliged to present them to a notary for registration of a protest. The amounts spent by him on the protest are reimbursed by the client upon receipt of the bill.
Factoring (fatoring, eng. from fator - intermediary) is an international loan in the form of a specialized financial company buying the exporter's monetary claims against the importer and collecting them. The development of factoring companies since the 60s of the XX century. due to delays in payments, non-payments, as well as the growing need of exporters for loans. Their historical predecessors were factoring and the colonial type, which were engaged in the purchase and sale of goods, warehouse and commission operations. Even in antiquity and in the Middle Ages, groups of merchants acted as agents for the sale of goods in markets not familiar to manufacturers. This is commodity factoring. Financial factoring first arose in the United States in 1890 in connection with the introduction of protective duties on textiles, designed to curb its imports from Europe. They were widely developed after the Second World War.
The bank carries out transactions with bills of exchange on its own behalf, but at the expense and in the interests of the committent. A certain fee is charged from the committent for such a transaction - a commission, the amount of which is set by the bank. To carry out a commission transaction, the committents submit an application to the bank, where (in addition to the request to accept bills of exchange for commission for making a payment), the payment term, the name of the payers, their addresses, the name of the protester (from whom the protest can be made), the total number and amount of bills are indicated. The bills of exchange transferred to the commission must be provided on the back with a warrant inscription of the principal in the name of the bank.
FACTORING (fa toring) - a kind of trade and commission operation, combined with lending to the client's working capital. F.'s operations are based on the purchase of customer accounts by a factoring company on terms of payment of up to 90% of the cost of invoiced deliveries and payment of the remaining part (minus interest on the loan) within strictly stipulated terms, regardless of the receipt of proceeds from debtors. The clients of factor companies are, as a rule, small and medium-sized commercial and industrial companies, sales agents, dealers, etc., usually settled on an open account. The vast majority of customers are suppliers of goods of relatively small unit value (eg, ready-made clothes, shoes, furniture, carpets, computer components, some chemicals). F. is a universal system of financial customer service, including accounting, information, advertising, marketing, transport, insurance, credit and legal. The client retains practically only production activities, the resulting savings compensate for the high cost of factor services (0.75 - 4% of annual turnover). Thanks to F., an acceleration of the turnover of funds in settlements is achieved. By receiving immediate payment for the bulk of the value of the invoiced goods, the customer can pay his suppliers in cash and receive a discount on the price for this. Factor operations are actively carried out by commercial banks that create branches or companies for this.
OPERATIONS (from Latin operatio - action) - 1) a universal term denoting a type of activity, an entrepreneurial transaction, a set of interrelated actions to solve a single economic problem or problem. Unlike an economic program, a business operation project implies a smaller, relatively short sequence of actions. It is customary to single out commercial, banking, exchange, currency, commission transactions 2) settlement, information procedures carried out in
Factoring involves the existence of a commercial loan in a commodity form, provided by sellers to buyers in the form of a deferred payment for the goods sold and drawn up by an open account.
Factoring is a kind of trade and commission operation, combined with lending to the client's working capital. The factoring company buys customer accounts on terms of payment of up to 90% of the cost of supplies and payment of the remaining part, minus interest on the loan, within the agreed time frame, regardless of receipt of payments from debtors.
The most common types of factoring are:
With liability for the risk of insolvency and without the right of recourse;
Without accepting the risks of insolvency, but with the right of recourse;
With financing at the time of purchase;
With funding by the time of maturity;
Accounts receivable management;
Without the right to manage accounts receivable.
In modern conditions, classical factoring involves the full service of the supplier (open factoring without recourse). However, later it was supplemented and modified - factoring with the right of recourse, closed factoring, and later its other variants appeared.
To create a unified legal basis for factoring in 1988, the Convention on International Factoring was approved. Any international factoring agreement covered by the Convention is intended to include at least two of the following transactions:
Financing the supplier with the provision of advances and loans;
Accounting processing of vendor invoices relating to ceded claims;
Receipt of funds from debtors;
Protecting the interests of the supplier due to the insolvency of its debtors.
Thanks to the adoption of this Convention, the concept of factoring was unified, which opened up the possibility of expanding its use in the world.
In accordance with Art. 1 of the UNIDROIT Ottawa Convention on International Factoring, a factoring contract is a contract entered into between one party (the supplier) and another party (the factoring firm, also referred to as the “assignee”) under which the supplier may or must assign to the assignee claims arising from contracts for the sale of goods concluded between the supplier and his customers (debtors), with the exception of those related to goods purchased mainly for their personal, family or household use, and the assignee is obliged to assume at least two of the following duties listed below:
Supplier financing (loan or long-term payment);
Maintenance of accounts for liabilities;
Presentation for payment of receivables;
Debtor insolvency protection.
Factoring performs a number of functions (Figure 12.4).
Rice. 12.4. Factoring functions
Among the economic advantages of factoring are:
– increase in liquidity, profitability and profit;
- converting receivables into real money;
– the opportunity to receive a discount for immediate payment of suppliers' invoices;
– independence from observance or non-observance by debtors of terms of payments;
- the possibility of expanding sales;
– Saving own capital;
– Improvement of the financial planning system.
The system characteristic of factoring advantages is presented in fig. 12.5.
Rice. 12.5. Factoring Benefits
The relationship between the factor-firm and the supplier is regulated by an agreement that fixes what type of service will be provided. A factoring service agreement is usually concluded for a period of 1 to 4 years. It reflects the conditions under which the operations will be carried out, in particular, the details of payment requests, the share of the payment amount of the factor firm from the amount of payment requests, the procedure for implementing the operation, the maximum amounts for factoring operations, the size of the commission, the conditions for terminating the factoring agreement.
Under a financing agreement against the assignment of a monetary claim, one party (financial agent) transfers or undertakes to transfer funds to the other party (client) against the monetary claim of the client (creditor) to a third party (debtor) arising from the provision by the client of goods, performance of work or provision of services to a third party, and the client assigns or undertakes to assign this monetary claim to the financial agent. The Civil Code of the Russian Federation establishes that banks and other credit organizations, as well as other commercial organizations that have a permit (license) to carry out activities of this type, can be financial agents.
The object of the contract is a monetary claim assigned in order to obtain financing. The subject of an assignment under which financing is provided may be a monetary claim that is already due and a right to receive funds that arises in the future.
The practical implementation of the factoring contract begins with the assignment by the supplier of his unpaid payment claims to the factor firm. To do this, the supplier provides a copy of the payment request issued to the buyer; a telegram to the payer's bank containing information about the factoring operation and a request to replace the name of the recipient (supplier) in the payment request with the details of the factoring company. Factor companies study these documents and, if they comply with the concluded contract, implement a factoring operation (open factoring).
The payer's bank, after receiving a telegram from the factor firm, about the completion of the factoring operation, replaces the name and number of the supplier's account in the payment request with similar data of the factor firm.
Factoring operations of various types are used in practice, in particular:
1. Domestic (if both parties to the sale and purchase agreement, as well as the factoring firm are located in the same country) or international;
2. Open (when the debtor is informed about participation in the factoring commission transaction) or closed (confidential). Notification of the debtor takes place by means of an entry on the invoice, confirming that the factoring company is the assignee for the arising debt, therefore, payments are made in its favor. This is not the case with confidential factoring;
3. With or without the right of recourse (demanding the supplier to refund the amount paid) or without such a right. It takes into account the risks that arise when the payer refuses to fulfill its obligations (credit risks). In a recourse factoring arrangement, the supplier bears part of the credit risk on the debt claims it sells to the factor firm. The latter has the right to take advantage of the possibility of recourse and, if necessary, sell the unpaid debt claim to the supplier in case the client refuses to pay. This condition is fixed when suppliers are confident that they will not have doubtful debt obligations or they highly appreciate the creditworthiness of their customers, having an appropriate system of protection against credit risks, or taking into account the specifics of their customers. In such a situation, the supplier does not consider it necessary to pay for credit risk insurance services. However, the funds guaranteed to the supplier can only be secured in the event of a non-recourse agreement. If a debt claim is invalidated, the factor firm always has a right of recourse to the supplier;
4. Provided that the supplier is credited in the form of prepayment (up to 80% of the debt claims assigned to him), or the payment of claims by a certain date. The advantage of prepayment is that it is fixed as a percentage of the amount of debt claims, therefore, the supplier easily receives more funds when sales increase. If there is no advance payment in the amount of the assigned debt claims (minus costs), the money is transferred to the supplier on a certain date (or after a certain period).
In practice, a variety of options for factoring agreements are used. The range of services is characterized by comprehensive factoring services and the provision of individual services. The first includes the financing of deliveries, the maintenance of accounting accounts for cash claims that are the subject of an assignment, advising the client, control of payment of invoices, protection against credit risks, etc.
Full factoring services are mainly used by newly created small enterprises. One-stop service factoring company promotes the implementation of an effective system of financial management and risk management in the enterprise.
Taking into account the requests of the supplier and the factoring company, many internal factoring agreements of various types are accepted. A full service agreement (open factoring without the right of recourse) is practiced, as a rule, with stable contacts between the participants. Such service is designed to protect against the occurrence of doubtful debts and ensure a specified cash flow; manage credit; sales accounting; prepayment lending or payment of the amount of assigned debt claims (net of costs) by a fixed date.
A full service agreement may or may not be recourseable. In the first case, the factor company does not insure the credit risk borne by the supplier. The Company can return to the supplier any amount of debt that is not paid by customers within a certain period (usually within 90 days from the due date of payment). Such an agreement is implemented as payments are received from customers. In this case, the supplier cannot have the guaranteed cash flow that is typical of a non-recourse full service.
When a supplier is not interested in entering into an open agreement, but intends to receive the full range of services from a factoring company, in other words, wants to enter into a closed (agency) agreement for a full service, the factor company can act through a special sales firm, thanks to which orders will be placed and in whose name the invoices will be issued. In this case, you can avoid notifying customers about the assignment of rights. The firm retains title to goods and invoices, handles bookkeeping and collection of debt claims, and provides credit risk protection as in a full service.
Forfaiting has a lot in common with factoring - export lending through the purchase without recourse to the seller of commercial bills accepted by the importer, as well as payment claims for foreign trade transactions. Here, the risks of the exporter are transferred to the forfaiter, who, observing his own interests, seeks to obtain a guarantee from the bank of the importing country. In order to hedge against currency risk, forfaiters usually buy claims in the strongest currencies. To guarantee the receipt of payments, the currency legislation of the importing country and the ability of the latter to fulfill foreign exchange obligations are systematically analyzed. The exporter is responsible for the legal aspects of the requirements: to deliver a quality product and ensure the fulfillment of contractual obligations.
The discount rate for forfeiting transactions is different and is determined depending on the category of currency debtors and the terms of lending. Forfaiting is usually more expensive than other forms of lending. Its advantage is the ease of execution of the transaction and the transfer of all risks to the forfaiter.
A characteristic condition for lending is the repayment of debt by periods in equal installments. Hence, credit risk decreases as the loan is repaid. With a bill of exchange, bills of exchange with different maturities are practiced, as a rule, with a six-month interval. The currency of the bill is US dollars, Swiss francs, German marks. The forfaiter buys bills of exchange from the exporter at a discount (minus the amount of interest). The size of the discount depends on the solvency of the importer, the term of the loan and market interest rates in a particular currency.
Although the costs of forfaiting are higher than other forms of lending, its advantages outweigh the disadvantages. In particular, forfeiting guarantees the following positive aspects for the exporter:
Elimination of problems in arranging a loan and receiving payment (reducing costs);
Release of the balance sheet from contingent liabilities and improved liquidity, as the exporter increases its ability as a borrower;
Elimination of interest rate risk, exchange rate risk or debtor status risk:
The speed of registration, the ability to use the differences between individual financial centers;
The right to include forfaiting costs in the price of goods when contacting a forfaiting bank when negotiating a contract.
Usually, even when negotiating with the importer on the delivery of goods on the terms of installment payment, the exporter usually contacts the bank (forfaiting company), which can buy bills of exchange from him on the terms of forfaiting. Depending on what the forfaiting bank offers, the exporter determines the price of the goods and the interest rate for installment payment. Since the forfeiting rate is greater than the interest on the loan, the exporter includes the difference in the price of the goods. The importer negotiates with his bank about the aval. After that, a foreign trade contract is signed. Having shipped the goods and issued the documents, the exporter sends them through his bank to the importer's bank. The importer issues a bill of exchange, avalizes it at the bank and receives documents for the goods. The exporter takes into account the bill of exchange in the bank marked "without turnover". Upon maturity, the forfaiter forwards the bill to the bank-availer for payment.
The absence of many risks (commercial, currency, country risk), the provision of a fixed discount rate by the forfaiter, the release of the exporter's balance from significant and long-term receivables make forfaiting a profitable operation for the exporter. Some Russian commercial banks, along with export factoring, offer their clients forfaiting services, emphasizing their readiness to buy from Russian exporters of machinery and equipment promissory notes avalized by correspondent banks. The participation of Russian banks in forfeiting is associated with the avalization of promissory notes issued by Russian buyers of machinery and equipment. To do this, Russian banks sign special interbank agreements with foreign banks for forfaiting operations.
Russian companies participating in export-import transactions using forfaiting lending are required to obtain a license from the Central Bank of the Russian Federation for the right to conduct operations with securities in foreign currency. The deadlines for Russia's forfeiting loans do not exceed one year.
There are many similarities between export factoring and forfaiting. In both cases, credit in commodity form is transformed from an intercompany (commercial) credit into a bank one. However, forfaiting services for an exporter involve medium-term (from 6 months to 5-7 years) or long-term lending for significant amounts, while factoring uses short-term (up to 120-180 days) financing of medium-sized contracts. In contrast to forfeiting, in factoring, the bank assumes only a certain share of the risks of the exporter. In addition, forfeiting is a one-time operation associated with the collection of funds under a specific document, and export factoring, as a rule, is based on permanent relations between the parties and comprehensive services. Forfeiting is also characterized by the presence of a secondary market, where resale of purchased commercial bills is possible. The general scheme of a forfaiting transaction is shown in fig. 12.6.
Rice. 12.6. Forfaiting deal scheme