Presented by shanti chhura

Presented by shanti chhura

• 1.
  FACTORING AND FORFAITING I.G.N.T.U.-AMARKANTAK PRESENTED BY SHANTI CHHURA M.COM 4th sem. ROLL NO. ‘10’
• 2.
  WHAT IS FACTORING Factoringis a “continuing arrangement” between a financial institution (the factor) and a business concern (the client) selling goods or service to trade customer’s where by the factor purchase the clients account’s ,receivables or book debt’s.
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  WHY WE NEEDFACTORING..? 1. For smooth cash flow 2. For meeting working capital needs 3. Overcome the situation from high cost of capital and reduced profit.
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  LEGAL ASPECTS OFFACTORING 1. There is no codified legal framework for factoring in India 2. Regulated under the law of contract 3. Legal relationship largely determined by the terms of the contract
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  FUNCTIONS OF FACTORING 1.It is purchasing and collection of the client accounts receivables (within or without resource) 2. Sales ledger management 3. Credit investigation and under taking of risks 4. Provision of finance against debts 5. Rendering consultancy
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  FUNDING PROCESS • Fax the copy of invoice to factor • Factors processes the invoice • Get up 80% of the invoice in 24 hours • 20% kept in reserve account • Factor receive the payment from customer • Factor deducts free from reserve account • Factor forwords the balance from reserve
• 7.
  TYPES OF FACTORINGSERVICES  Full service factoring or W/O recourses factoring:- 1. standard factoring 2. factor assume credit risk  With recourses factoring:- 1. factor does not assume credit risk 2. if debtor not paid clients have to take the work for collection
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  CON……… Maturity factoring:- 1. collection factoring 2.paid to client only when factor get money Bulk factoring:- 1.disclosed factoring 2.provides finance after discounting the fact of assignment  invoice factoring:- 1.only provides finance against invoice
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  CONTNIU…… 3. all other work have to be done by client Agency factoring:- 1. factor and client share the work 2. the factor has to provides and assume risk International factoring:- 1. done with exporters 2. facilitated with the help of export and importer factor
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  MECHANICS OF EXPORTFACTORING 1. Export factor 2. Money factor 3. Import factor 4. Goods 5. money of receipt of invoice 6. Importer 7. Exporter
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  BENEFITS OF FACTORING  Financial service  collection service  provision of expertise sales ledger management  credit risks service
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  CONTIN…………….  consultancy service  economy in servicing  off –balance sheet financing  trade benefits  miscellaneous services
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  WHAT IS FARFAITING “Forfeiting” is derived from French word a Forfait which means forfeiting or surrender of rights.  It is a mechanism of financing exports- 1. by discounting export receivable. 2. evidenced by bills of exchange or , 3. promissory notes. 4. without recourse to the seller.
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  LEGAL EMPLICATION OFFACTORING 1. When a customer presents a bill of exchange or hundi along wit his invoice, the factor must first check if there is a guideline underlying trade transaction. 2. The factor must check with the client’s banker to ensure that there is no double financing. 3. Regarding assignment of book debts of client’s provision of section 130 of the transfer of property act protect the interests of the factor.
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  CONTIN………. 5. carrying medium to long-term maturities. 6. of fixed rate basis (discount). 7. up to 100 percent of the contract value.
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  SIX PARTIES INFACTORING 1. EXPORTER (INDIA) 2. IMPORTER (ABROAD) 3. EXPORTER BANK (INDIA) 4. IMPORTER /AVALISING BANK(ABROAD) 5. EXIM BANK (INDIA) 6. FORFEITER (ABROAD)
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  FARFAITING -8 STEPS 1.Commercial contract ; exporter and foreign buyer. 2. Commitment to forfait BE, promissory note. 3. Delivery of goods by exporter to buyer. 4. Delivery of bills exchange or PN note to bank to EXIM bank.
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  CONT…………… 5. Endorsement ofBE/PN without, recourses. 6. Cash payment through a nitro account. 7. Presentation of bills of exchange or promissory note to buyer on maturity. 8. Payment of debt instrument on maturity.
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  BENEFITS TO EXPORTER 1.Hedges against interest and exchange risks. 2. Converts a deferred payment export into a cash transaction improve liquidity. 3. Frees exporter from cross-border political or commercial risk associated. 4. Finance up to 100 percent of export value. 5. It is a “without recourses finance ”.
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  THANK YOU