Legal Encyclopedia. Letter F

FACTORING

- Assignment of unpaid debt claims (invoices and bills) arising between the contracting parties in the implementation of the goods and services on a commercial loan conditions.

In accordance with the Convention on the International FA, adopted in 1988 by the International Institute for the Unification of Private Law, the operation is considered to be F. in the case, if there are at least two of four events:

1) lending provider in the form of pre-payment of its debt claims;

2) accounting provider, above all taking into account the implementation;

3) collection supplier debt;

4) insurance provider of credit risk.

In a number of countries to the FA still carry a simple accounting of invoices - an operation that satisfies only the first signs.

Factoring service is most effective for small and medium-sized businesses, which traditionally are experiencing financial difficulties due to delayed maturity debtors debts and limited available to these lending sources. Factoring services are not subject to:

1) enterprises with a large number of borrowers, which individually insignificant;

2) companies producing highly specialized or non-standard products;

3) construction and other firms working with subcontractors;

4) The company, realizing products under the conditions of after-sales service;

5) businesses, practitioners advance payments or barter.

Factoring operations are divided into:

1) internal, where the supplier and its customer and the factoring company are resident in the same country;

2) International;

3) open, when the debtor is aware of the involvement in the deal to a factoring company;

4) closed (confidential).

Notification of the debtor in the open VF is carried out by a corresponding entry on the invoice with recourse, ie recourse to the vendor to reimburse the amount paid or without such a right under the condition of lending provider in the form of pre-payment (up to 80% less than the debt claims) or payment by a certain date.

At the international F. factoring company serving the exporter, as a rule, it enters into a contract with a factoring company of the importing country. Such F. called mutual. Sometimes exporter profitable to enter into an agreement directly with the factoring company of the importing country (direct import F.).

High costs of mutual F. lead to the fact that a number of factoring companies give preferring of the direct export F., ie, take on credit risk, accounting and collection of debt claims to the overseas buyer.

The fee charged by the factoring company with the supplier, consists of two main components: management fee, ie, Commission for the proper factoring -working accounting, insurance against the emergence of bad debts, etc. (Typically 0.5-3% of the annual turnover of the supplier) and the fee for registration, which is charged on the amount of funds provided by the supplier in advance (in the form of advance payment of tradable debt requirements) for the period between the early receipt and the date of collection requirements (usually 2 4% more than the current bank rate, used for short-term lending to clients with a similar turnover and solvency).

AF can also combine trade and commission operations with crediting the client working capital, which includes the collection of his debts, as well as a guarantee of credit and currency risks. At the core VF is discounting invoices.

Factoring operations are carried out by commercial banks, organizing

specialized branches or companies.

The clients of factoring companies act, as a rule, small and medium-sized commercial and industrial companies, agents, dealers, etc. N., Calculated in the usual open account.

Widespread export FA because of an absolute guarantee of the credit and currency risk when opening the account, as it is beneficial for importers and stimulates their purchases.

The main advantage of F. - speed the turnover of funds. Get instant payment on the main part of the cost of the invoiced goods, the customer can pay with their suppliers in cash and get a discount on the price. But the high flexibility of service threatens to put the customer at the mercy of the factoring company in the field of sales. How Conventional alternative exists confidential F.