PPT

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
Factoring is 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.

3. WHY WE NEED FACTORING..?
1. For smooth cash flow
2. For meeting working capital needs
3. Overcome the situation from high cost of
capital and reduced profit.

4. LEGAL ASPECTS OF FACTORING
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

5. 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

6. 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 FACTORING SERVICES
 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

8. 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

9. 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

10. MECHANICS OF EXPORT FACTORING
1. Export factor
2. Money factor
3. Import factor
4. Goods
5. money of receipt of invoice
6. Importer
7. Exporter

11. BENEFITS OF FACTORING
 Financial service
 collection service
 provision of expertise sales ledger
management
 credit risks service

12. CONTIN…………….
 consultancy service
 economy in servicing
 off –balance sheet financing
 trade benefits
 miscellaneous services

13. 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.

14. LEGAL EMPLICATION OF FACTORING
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.

15. CONTIN……….
5. carrying medium to long-term
maturities.
6. of fixed rate basis (discount).
7. up to 100 percent of the contract value.

16. SIX PARTIES IN FACTORING
1. EXPORTER (INDIA)
2. IMPORTER (ABROAD)
3. EXPORTER BANK (INDIA)
4. IMPORTER /AVALISING BANK(ABROAD)
5. EXIM BANK (INDIA)
6. FORFEITER (ABROAD)

17. 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.

18. CONT……………
5. Endorsement of BE/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.

19. 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 ”.

20. THANK YOU