faaiz
January 4th, 2008, 04:49 PM
Factoring & Forfaiting
Factoring
Concept
Mechanism
Functions of a factor
Administration of sales ledger
Provision of collection facility
Financing trade debts
Credit control and credit protection
Advisory services
Cost of services
Finance charge
Service fee
Types of factoring
Recourse and non-recourse factoring
Advance and maturity factoring
Full factoring
Disclosed and undisclosed factoring
Domestic and export factoring
Invoice discount
Factoring v/s. Bill Discounting
Similarities
Short term finance
Discounting accounts receivable
Differences
Recourse
Responsibility
Services
Rediscounting
Provision of bulk finance
Stamp duty
Documents
Working capital limits
Factoring v/s. Cash Credit
Similarities
Short term finance
Differences
Margin
Drawing power
Submission of statements
Collection services
Working capital limits
Advantages of factoring
To client (Seller)
Impact on balance Sheet
Higher credit standing
More time for planning
Reduction of cost and expenses
Additional source
Improves cash flows
Results in higher level of sales activity
Support services helps the client to concentrate more on the production and marketing activity resulting in cost reduction
To the customer
Facilitates credit purchases
Provides adequate credit period for making payments
Periodical statements helps manage Accounts Payable
To the factor
Additional source of income
Improves quality of advances
Forfaiting
Forfaiting v/s. Export Factoring
1. Discounting
2. Financing
Players in Indian Market
Success of SBI Factors lies in:
1. Good logistic support from SBI
2. Margin requirements
3. Monthly statements
4. Grace period and overdue interest
5. No need for collateral security
Success Stories of SBI Factors, Coimbatore
1. Suja Rubber Industries Ltd., SSI unit of Pondicherry
2. Annapoorani Electricals, an SSI unit of Coimbatore
Canbank Factors- Success in easy and quick processing
Global Trade Finance Pvt. Ltd. (GTF)
Reasons for slow growth of factoring industry in India
1. Factoring is not a Standalone Product
2. Non-Recourse Factoring is almost missing
3. Commercial Banks are resistant to render factoring services
4. Customers are still not aware of factoring services
5. Bankers do not permit their customers to shift their business to factors
6. Network of branches is poor for factoring companies
7. Factoring companies are treated as NBFCs
8. Factors are not permitted to make pre-shipment finance in case of exports
9. Legal environment is not very conducive
SMEs
Progress:
Unibios Laboratories, a Mumbai-based pharmaceatical company, a 40-crore SME, had been funded by banks on the basis of collateral for short term working capital.
As per Factors Chain International (FCI). A Netherlands-based association of factoring companies has in 5 years grown from Rs. 1,980 crore ($450 million) in 2002-03 to Rs. 11,000 crore ($2.5 billion) today. This number is expected up to 44.000 crore ($10 billion) by end-2007.
300 thousand companies in 60 countries currently use factoring as a means of credit, amounting to a global business of over Rs. 52,20,000 crore (900 billion pounds). Asia-Pacific Region accounts for 16% of this value.
SMEs are responsible for 34 per cent of Indias exports.
Hurdles:
Use of LCs
Payment of accumulated debts
Penal interest rate
Domestic factoring expensive
Levy of fees
Favorable Factors:
Export Factoring cheaper
Bundle of services offered
Factoring
Concept
Mechanism
Functions of a factor
Administration of sales ledger
Provision of collection facility
Financing trade debts
Credit control and credit protection
Advisory services
Cost of services
Finance charge
Service fee
Types of factoring
Recourse and non-recourse factoring
Advance and maturity factoring
Full factoring
Disclosed and undisclosed factoring
Domestic and export factoring
Invoice discount
Factoring v/s. Bill Discounting
Similarities
Short term finance
Discounting accounts receivable
Differences
Recourse
Responsibility
Services
Rediscounting
Provision of bulk finance
Stamp duty
Documents
Working capital limits
Factoring v/s. Cash Credit
Similarities
Short term finance
Differences
Margin
Drawing power
Submission of statements
Collection services
Working capital limits
Advantages of factoring
To client (Seller)
Impact on balance Sheet
Higher credit standing
More time for planning
Reduction of cost and expenses
Additional source
Improves cash flows
Results in higher level of sales activity
Support services helps the client to concentrate more on the production and marketing activity resulting in cost reduction
To the customer
Facilitates credit purchases
Provides adequate credit period for making payments
Periodical statements helps manage Accounts Payable
To the factor
Additional source of income
Improves quality of advances
Forfaiting
Forfaiting v/s. Export Factoring
1. Discounting
2. Financing
Players in Indian Market
Success of SBI Factors lies in:
1. Good logistic support from SBI
2. Margin requirements
3. Monthly statements
4. Grace period and overdue interest
5. No need for collateral security
Success Stories of SBI Factors, Coimbatore
1. Suja Rubber Industries Ltd., SSI unit of Pondicherry
2. Annapoorani Electricals, an SSI unit of Coimbatore
Canbank Factors- Success in easy and quick processing
Global Trade Finance Pvt. Ltd. (GTF)
Reasons for slow growth of factoring industry in India
1. Factoring is not a Standalone Product
2. Non-Recourse Factoring is almost missing
3. Commercial Banks are resistant to render factoring services
4. Customers are still not aware of factoring services
5. Bankers do not permit their customers to shift their business to factors
6. Network of branches is poor for factoring companies
7. Factoring companies are treated as NBFCs
8. Factors are not permitted to make pre-shipment finance in case of exports
9. Legal environment is not very conducive
SMEs
Progress:
Unibios Laboratories, a Mumbai-based pharmaceatical company, a 40-crore SME, had been funded by banks on the basis of collateral for short term working capital.
As per Factors Chain International (FCI). A Netherlands-based association of factoring companies has in 5 years grown from Rs. 1,980 crore ($450 million) in 2002-03 to Rs. 11,000 crore ($2.5 billion) today. This number is expected up to 44.000 crore ($10 billion) by end-2007.
300 thousand companies in 60 countries currently use factoring as a means of credit, amounting to a global business of over Rs. 52,20,000 crore (900 billion pounds). Asia-Pacific Region accounts for 16% of this value.
SMEs are responsible for 34 per cent of Indias exports.
Hurdles:
Use of LCs
Payment of accumulated debts
Penal interest rate
Domestic factoring expensive
Levy of fees
Favorable Factors:
Export Factoring cheaper
Bundle of services offered