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Non Banking Services - Factoring & Forfaiting - Coggle Diagram
Non Banking Services - Factoring & Forfaiting
Factoring
Parties
Supplier or Seller (Client)
Buyer or Debtor(Customer)
Financial Intermediary(Factor)     
Services Offered by a Factor
Follow-up and collection of Receivables from Clients
Purchase of Receivables with or without recourse
Help in getting information and credit line on customers (credit protection)
Sorting out disputes if any, due to his relationship with Buyer & Seller
Factoring Process
1: Client concludes a credit sale with a customer
2: Client sells customer’s account to Factor and notifies customer
3: Factor makes part payment (advance) against account purchased, after adjusting for commission and interest on advance
4: Factor maintains customer’s account and follows up for payment
5: Customer remits amount due to Factor
6: Factor makes final payment to Client when account is collected or on guaranteed payment date
Types
Recourse Factoring - Maturity Factoring
Non-recourse Factoring - Cross-border Factoring
Cross Border four parties
a) Exporter
b) Export Factor
c) Import Factor
d) Importer
Factor Fees
Commissions
Commitment fees
Interest
Additional fees
Forfaiting
Parties
Exporter
Importer
Importers Bank
Forfaiting Bank
Steps
1 : Forfaiter and Exporter agreed upon a Forfaiting Agreement
2 : Sales Contract has been signed between Exporter and Importer
3 : Shipment is initiated by exporter
4 : importer obtains a guarantee from his bank
5 : importer sends documents to exporter
6 : Exporter gives documents to forfaiter
7 : Forfeiter controls documents pays for m as indicated on Forfaiting Agreement
8 : Forfeiter presents documents to bank at maturity date
9 : Importer pays to bank at maturity date
10 : Bank pays to forfeiter at maturity date
Costs Involved
Commitment Fee
Discount Fee
Documentation Fee
Service Charges
Advantages
Eliminates Risk
Enhances Competitive Advantage
Improves Cash Flow
Disadvantages
Not available for deferred payments
Discrimination between Western countries and underdeveloped countries in Southern Hemisphere
No International Credit Agency to guarantee for forfaiting companies which affects long- term forfaiting.
Only selected currencies are taken because of international liquidity
Factoring vs Forfeiting
Meaning
Maturity of receivables
Goods
Finance up to
Type
Cost
Negotiable Instrument
Secondary Market
Finance
Credit Worthiness
Services Provided
Recourse
Sales