The word factor comes from the Latin verb facio, which literally means “one who does.”

Factoring is a type of trade commission intermediary operation, combined with lending of the client’s working capital, associated with the assignment by the client-supplier to the factoring company of unpaid payment claims for goods supplied, work performed and services and the rights to receive them.

Thus, factoring includes:

· collection of client's receivables (receipt of funds according to payment documents);

· lending;

· guarantee against credit and currency risks.

Subjects of factoring. Three parties are involved in factoring operations: the factoring company (or the factoring department of the bank), which assumes responsibility for the payment of funds for outstanding payment orders, the client (creditor), who is the supplier of goods, services or funds, and the enterprise (firm) - the buyer goods.

Factoring began to actively develop in England in the 14th century, which was directly related to the development of the textile industry. At that time, sales markets were remote from the places of production; factors played the role of a connecting link between production enterprises and final buyers of products. The factor who knew the commodity market, the solvency of buyers, the laws and trade customs of a given country, was tasked with finding reliable buyers, storing and selling goods, as well as the subsequent collection of trade proceeds.

Factoring functions

The main difference between factoring of the 14th century and today’s is, perhaps, only that the factor has ceased to serve as a distributor of goods. Modern factoring performs the following main functions:

· financing of working capital.

· collection of client debts;

· insurance of financial risks (if provided for in the contract, factoring assumes the risk of non-payment).

This set of functions makes factoring an indispensable mechanism for small and medium-sized enterprises, whose access to credit is traditionally difficult.

Since the 50s of the 20th century, there has been a rapid increase in the number of factoring companies in Europe. It was during this period that enterprises began to increasingly use installment payments when delivering goods to their counterparties. This practice was due to two main reasons. On the one hand, a stable “buyer’s market” gradually began to form for a number of product groups, where buyers began to determine the basic terms of trade transactions, insisting on the use of installment payments. On the other hand, many buyers at that time experienced a lack of free cash and preferred to first sell the goods to the final consumer (or turn the purchased products into the final product), and then pay their own suppliers. Thus, buyers preferred to use a commercial loan rather than take a loan from a bank, which involves many formalities, is limited in nature (i.e., each time the need for additional borrowed funds arises, you need to apply for a new loan) and is not always possible.

At the same time, suppliers themselves experienced a lack of working capital and were often financially unable to provide payment in installments. Factoring was a timely response to the need for working capital among suppliers. Financing suppliers immediately after shipment of goods allowed suppliers to provide their customers with significant payment installments without worrying about their own liquidity. Demand for the products of such suppliers grew, sales grew, and at the same time as sales, supplier financing grew.

Advantages of factoring operations

Factoring has a number of advantages over other financial instruments:

· firstly, factoring does not require the provision of collateral in the traditional sense, therefore it is available to a wide range of small and medium-sized companies, including those just starting their activities;

· secondly, with factoring, 100% targeted use of funds occurs, while usually, when a company attracts loans, it remains with a constant minimum balance in the account (therefore, in reality, the borrower pays a higher rate for the loan than the formally established one , in factoring such a situation is impossible);

· thirdly, factoring allows you to save on income tax. In accordance with modern tax legislation, this tax must be paid “on sale”, i.e. from the moment of actual shipment of the goods. However, if a company provides deferred payment (commercial credit) to its customers, then funds for shipped products will arrive later. Thus, in practice, a situation arises when obligations to pay income tax arise before funds from sales are received. Factoring allows you to avoid this situation.

Beginning around the mid-1980s, the factoring industry has experienced the fastest growth rate in the financial sector of the global economy. The volume of assigned receivables in 1998 amounted to 456 billion euros, by 2003 it had already reached 760 billion euros - thus, an increase of more than 160%. Today, there are about a thousand companies operating in the market, located in North and South America, Europe, Asia, Australia and Africa. The largest market is Europe, which accounts for 71% of factoring turnover, followed by America (14%) and Asia (14%).

4.3.1. Factoring

factors , collection of client accounts receivable.

The purpose of factoring operations is the timely collection of debts to reduce losses in case of delay in payment, and the provision of credit in the form of prepayment of settlement documents. In this case, the bank (or factoring company) undertakes to pay the amount of payment requests submitted to it, regardless of whether the supplier’s counterparties have paid their debts.

There are two types of factoring services:

Factoring with financing - the supplier receives a certain part of the amount of settlement documents immediately after the assignment of debt;

Factoring without financing - funds are transferred to suppliers after the normal document flow period has expired (usually 2-3 days).

It is important in the transaction to determine the maximum amount for factoring operations, within which the delivery of goods can be carried out without the risk of non-receipt of payment.

In foreign practice, three methods of establishing limit amounts are used:

a) determination of the general limit within which the factoring department automatically pays for the settlement documents assigned to it;

b) determination of monthly limits;

c) insurance of certain transactions, when a feature of the supplier’s activities is to conduct certain large transactions. In this case, the contract amount is not limited, and the risk of the operation is amortized by the insurance operation.

Traditional for factoring is payment of part of the settlement documents - 70-90% of their value, the supplier receives the rest of the amount after payment of the settlement documents by the debtor.

Factoring relationships are built on the basis of an agreement. A peculiarity of domestic practice is that in most cases banks enter into an agreement with the right of recourse. In this case, after a certain time (2 months), the bank can return the payment documents to the supplier if the payer refused to fulfill his obligations.

Commission fees for a factoring transaction consist of two elements:

1) service fee - set as a percentage of the transaction amount. In foreign practice it varies between 0.5-3.0%. When concluding a contract with the right of recourse, a discount is made.

2) payment for the loan funds provided, subject to advance payment (interest on the loan). The interest rate is usually slightly higher than the market rate.

A factoring agreement may provide for the provision of additional services: accounting services, legal services, consultations.

Previous

Factoring is a type of trade and commission operation aimed at solving the problem of the client’s lack of working capital to carry out settlements with his partners.
In the classic version, factoring is a multi-purpose operation associated with short-term lending to a client through the purchase of debt obligations from buyers of products or suppliers of raw materials and equipment; insuring clients against the risk of non-payment on the part of their partners; control over the financial condition of suppliers and the solvency of buyers; organizing accounting for the movement of products and payments for them, as well as advising clients regarding the sale and advertising of goods, works, and services.
World experience shows that in the 60s of the 20th century, factoring operations began to gradually replace commercial credit based on bills of exchange. Factoring developed especially rapidly in the 80s, when over 10 years its turnover grew 74 times in Italy, 14 times in Spain, 7.5 times in Great Britain and France (“Economics and Life,” No. 27, July 1996, Appendix, p. 9).
In Russia, after the publication of the letter of the State Bank of the USSR “On the procedure for operations for the concession by the supplier to the bank of the right to receive payment on payment claims for goods supplied, work performed and services rendered” (No. 252 dated 02/12/89), it became possible to carry out factoring operations by commercial banks . The right of banks to this type of activity (“acquisition of the right to claim from third parties is used
fulfillment of obligations in cash") was fixed by the Federal Law “On Banks and Banking Activities in the Russian Federation” (Article 5, paragraph 6 - Transactions). Somewhat earlier, in 1988, Promstroibank of the USSR, as an experiment, created factoring departments and began conducting operations. Later other commercial banks joined it. However, the first factoring experience was not entirely successful and revealed a number of problems:
the operations of discounting payment claims carried out by banks actually had little in common with full-fledged factoring services;
insufficient attention was paid to the work of raising funds for factoring, in particular deposits from citizens and funds from business structures. Due to a certain isolation of factoring departments, this issue has acquired particular importance;
analysis of the structure of funds used for factoring revealed their irrational allocation, since more than half of the resources were directed to paying wages to employees of enterprises, which negatively affected the turnover of funds;
The practice of factoring operations of Russian banks has shown that it is necessary to form a reserve fund to ensure the department’s obligations to clients and to cover possible losses on operations.
In the mid-90s, a new wave of interest of commercial banks in factoring operations arose. Thus, since July 1996, an agreement was signed between the Russian Credit Bank and 48 trading enterprises in Moscow on the transfer of receivables. In fact, Russian Credit offered clients comprehensive services for financial support for product sales and settlements with consumers. The International Institute for the Unification of Private Law adopted the Convention on International Factoring in 1988, which defined the main criteria for factoring:
providing lending in the form of prepayment of business requirements;
maintaining accounting records for the supplier, including accounting for sales of products, works, and services;
collection of supplier debt;
insurance of the supplier against credit risk.
An operation is classified as factoring if it meets at least two of the specified criteria. Depending on the composition of the participants in the transaction and its subject, various types of factoring can be distinguished. Thus, when servicing customer debt for payments for goods, work, and services, factoring participants are:
the factoring department of a commercial bank or a specialized factoring company that organizes the operation;
product supplier;
product buyer.
Depending on the type of debt, supplier factoring and buyer factoring are distinguished.
The subject of supplier factoring is accounts receivable for settlements with its customers. This is the most popular form of factoring. Purchasing debt obligations from a supplier allows him to solve the problem of insufficient funds to carry out financial and economic activities, rationalize the structure of his balance sheet, reduce the risks of non-payment, and accelerate cash flow.
Factoring of the buyer (payer) is based on accounts payable. An agreement is concluded with the paying company for mandatory payment by the factoring unit on the same day of all or specially agreed upon amounts.
claims against him. The meaning of this operation is that the absence of accounts payable to suppliers contributes to the uninterrupted shipment of the necessary raw materials, fuel and other elements necessary for production. The debt to the bank's factoring division resulting from these costs is repaid by transferring funds at the expense of the payer. It should be noted that compared to supplier factoring, buyer factoring is a more risky operation, therefore the amount of commission charged for the operation should be higher. This type of factoring often uses a progressive interest rate to pay off the debt owed to the factoring department.
In some cases, the subject of a factoring agreement may be a legal entity's wages owed to employees. In essence and the mechanism of implementation, such an operation is a type of simplified form of factoring for the payer.
The organization of factoring operations involves several stages:
formation of a factoring department of a commercial bank or a specialized factoring company. In the first case, the bank division must be sufficiently separate. The bank provides it with its own funds, the amount of which can subsequently increase due to profits from operations. The factor department's own funds also include a reserve (insurance) fund, intended for emergency compensation of the need for funds for operations or to compensate for losses as a result of an increase in the risk of operations. In addition, the factor department attracts funds from legal entities and individuals, loans received from the “home” bank or other commercial banks. When an independent factoring company is formed, the formation of resources is determined by its organizational and legal form;
the staff of the department should include a variety of specialists: economists, credit specialists, accountants, specialists in industry markets, enterprise economics, as well as bank security officers;
The factor department develops requirements for clients. In particular, when factoring a supplier, the client must meet the following criteria: its products or services, types of work must be of high quality and be in stable demand in the market; production should grow dynamically and have good prospects; it must have experienced management personnel; good organization of accounting and reporting; permanent trading partners based on contracts; it is important that there are no excessive accounts receivable and payable, including to the budget and banks;
the characteristic features of persons and types of debt are determined, in the presence of which the factor department refuses to work. These include: clients with low payment and creditworthiness; clients conducting compensation or barter transactions; enterprises with a large number of small debtors or a high level of overdue receivables; clients offering debt obligations of individuals or claims to budget organizations as the subject of factoring; enterprises producing highly specialized products. In all of the above cases, the risk of the factor department increases sharply and cannot be compensated even by an increased commission;
A standard factoring agreement is being developed, which stipulates the terms of the agreement with the client: type of factoring; transaction term; type of debt obligations as the subject of the agreement; factoring fee; sanctions applied in case of violation of the contract; conditions for termination of the contract (by mutual agreement of the parties, in case of insolvency of the client, at the request of one of the parties);
- possible forms of factoring are determined, which in these conditions are appropriate to offer to clients.
The process of movement of credit resources during factoring is schematically presented in Fig. 16.3.


- shipment of products, implementation of works, services;
- sale of debt obligations of payers by factoring
my department or company;
- obtaining a loan in the form of payment of debt obligations for
the date specified in the contract;
- repayment of the loan provided to the client through payment
obligations by payers.
In world practice, there are various forms of factoring. The most comprehensive services are provided in the case of a full service agreement, which is usually offered to regular clients. Full service includes protecting the client-supplier from the risk of non-payment on the part of buyers (in a non-recourse contract); organization of accounting of sold products and the status of accounts receivable; ensuring the receipt of funds by the supplier through prepayment of debt obligations of buyers. Advance payment can be made by the factoring division on a date specified in the contract or after an agreed period of time, regardless of the receipt of funds from the supplier's payers. Prepayment is made for the entire amount of presented debt obligations in rare cases, since the factor department must receive a commission. True, an option is possible in which the commission is transferred by the client to the account of the factor department. However, in this case, an extra stage appears in the factoring operation, which leads to a slowdown in the movement of funds and irrational cash flows. In addition, in such a case, the risk of the department increases and - if the terms of the contract are violated by the supplier - the problem of cost compensation arises, including for the granted loan, taking into account interest. Due to this, the amount of advance payment is established
within 80% of the amount of debt obligations. The balance of the amount of debt obligations (from 20%) is reimbursed to the client minus commissions and other expenses of the factoring department after payment of obligations from the client's payers is received in his accounts.
Based on the level of awareness of other persons about the agreement concluded between the client and the factoring unit, open and closed factoring are distinguished.
Open factoring is called factoring, the availability of which is notified to the client’s partners. In this case, they are informed that the client’s legal successor becomes a factor department of the bank or a factoring company with certain account details. With open factoring, the client receives a loan in the amount agreed upon in the contract from the value of debt obligations, payment for which is made to the factoring department or company.
With closed factoring, all funds from payers still go to the account of the client, who transfers them to the account of the factoring department of the bank or company with the addition of a commission. As a result of this procedure, the process of repaying the loan debt is delayed, the factoring division requires additional resources for current operations and, in addition, the risk of non-payment increases, since claims may be made against the client’s account from other persons (tax authorities, creditors). All this Closed factoring becomes more expensive.
Based on the level of risk of non-payment, factoring with and without recourse can be distinguished. Factoring with the right of recourse assumes that the factoring department or company has the right to return to the client the debt obligations purchased from him if the payer refuses to pay them, regardless of the reason. Thus, this form of factoring transfers the risk of non-payment and thereby repayment of the loan to the client. In accordance with the right of recourse, the client is obliged to reimburse the factoring division for the amount paid upon the sale of debt obligations, but the commission is not returned to the client. This form of relationship is beneficial to the client only if the solvency of his partners is sufficiently high.
With non-recourse factoring, the factoring unit fully assumes the risk of non-payment on the part of payers if their obligations were considered during the preliminary analytical work and included in the contract. In this form of factoring, the costs of the factoring division are not limited to the amount of previously paid debt obligations: they increase by the amount of costs to protect the interests of the division, as well as by the amount of lost profit as a result of delays in repaying loans.
If there is a foreign participant in the transaction (for example, foreign payers of the supplier-exporter), factoring acquires an international character. It should be taken into account that in this situation, risks additionally increase for the factoring department of a bank or company - currency (unfavorable changes in the exchange rate) and transfer (difficulties in transferring foreign currency payments).
During a factoring operation with a specific client, the following stages must be distinguished:
1. Preliminary assessment of the financial condition of the client and his partners. The creditworthiness of the client himself is subject to analysis (based on his balance sheets and statements); the solvency of its debtors; quality and competitiveness of manufactured products, works, services; profitability level and profit dynamics; size and sources of formation of the client’s working capital, including their own.
Analysis of the volume and quality of debt obligations presented by the client. Its goal is to determine the number of client payers and the role of each of them in the turnover of his debt; the type of debt obligations and the share that will not be taken into account in factoring operations; the presence of seasonal fluctuations in the client’s production and sales volumes; facts of refusal to pay debt obligations and their reasons.
Determining lending limits depending on the client’s funds turnover conditions, risk level, potential loan repayment terms, type of factoring and other factors. The lending limit is determined primarily by the established amount of advance payment (up to 80% of the amount of debt obligations). However, the actual amount of prepayment for factoring with recourse may decrease taking into account:
the amount of issued debt obligations for each payer exceeding the limits established for him;
funds to cover obligations in connection with payment refusals;
amounts of funds for obligations whose term exceeded the repayment period established in the agreement, etc.
Factoring fee calculation. It is produced using several components, the value of each of which depends on a number of factors (see Fig. 16.4).
Factoring commission
Management fee
Accounting fee (credit)
Percentage of the client's annual turnover
Loan interest on short-term transactions
Additional interest - for risk and compensation for other expenses
+
Factors
Factors
Client's creditworthiness
Total risk level
Loan repayment term
Composition of factoring (collection, accounting, debt insurance)
Scale and structure of production
. Buyers' solvency
Conditions of the banking and commodity markets
Rice. 16.4.
Concluding a factoring agreement, which, in addition to the terms of the agreement, notes the client’s responsibility for the timely provision of information to the factor department or company about the debt of customers, their financial condition, turnover of funds in settlements, as well as his obligation to transfer commissions within the time limits established in the agreement . In turn, the factor department or company undertakes to pay the transferred debt obligations and all costs associated with the transfer of funds within the agreed time frame.
Notification of payers about participation in the payment turnover of the factor department of a bank or company and changes in account details for payment of debt obligations (in the case of open factoring).
Information and analytical support of the contract. In accordance with the agreement, the factoring division keeps records of the client’s payment transactions and periodically provides him with a report on the status of the debt, the reasons for its formation and measures to reduce it.
The parties fulfill their obligations in accordance with the agreement. If the terms of the contract are violated, the guilty party is subject to sanctions and fines.
Thus, over time, factoring operations can firmly become part of the range of services of commercial banks in Russia.
Forfaiting is a unique form of lending to exporters and sellers when selling goods. According to the mechanism of implementation, it is quite close to factoring. At the same time, it is necessary to note the existing differences between these operations:
factoring is usually short-term in nature (up to 180 days), while forfeiting is more often associated with medium-term transactions (from six months to several years). However, in order to reduce the bank's risk, it is advisable for the drawer to split his obligation into several bills of exchange with shorter maturities;
When factoring, operations are carried out mainly within the national market, although it is possible for a foreign partner to participate in the transaction. Forfaiting is always associated with servicing export-import transactions;
There are two types of factoring: with and without recourse. Banks usually prefer the first one. When forfeiting, banks are forced to waive their right of recourse. Thus, the bank assumes all risks, relieving its clients from them;
When factoring, there is a practice according to which the bank pre-pays the client up to 70-80% of the amount of obligations presented. The remaining part of the amount minus the factoring fee is received by the client only after payment of contingent obligations by the payers-buyers of products, works, and services. At the time of purchase of the bill of exchange, the forfaiting bank presents to the client the bill amount minus the discount, i.e. the client immediately has relatively larger funds in his hands than with factoring;
There are differences in the types and extent of risks. In particular, in comparison with factoring, forfeiting additionally arises such types of risk as country conflict (including economic and political, associated with unfavorable changes in the country of the drawer-payer - military and social conflicts, intervention, civil war, economic crisis, imperfection of legislation, etc.); transfer risk (the possibility of payment delays as a result of a moratorium adopted by the state, legislative restrictions, the presence of a non-payment crisis in the banking system; currency risk (associated with an unfavorable change in currency parities, resulting in losses for one of the parties); guarantor risk (loss of solvency avalist or guarantor; to reduce this risk, the bank limits the volume of guarantees from one person).

Factoring is a type of trade and commission operation combined with lending to the client’s working capital.

The basis of the factoring (factoring) operation is the purchase by the bank of invoices (payment requirements) of the supplier for shipped products and the transfer by the supplier to the bank of the right to demand payment from the buyer of the products.

Therefore, factoring operations are also called crediting supplier sales or providing a factoring loan to a supplier. Commercial banks, by developing factor credit, receive an additional opportunity to expand their operations, increase profits and strengthen relationships with clients. There are two types of factoring: conventional (open) and confidential (hidden). With conventional factoring, the supplier indicates on its invoices that the claim has been sold to the factoring firm. With confidential factoring, none of the supplier's counterparties is aware of the crediting of its sales by the factor company. Therefore, the cost of confidential factoring operations is higher than conventional ones, and much more expensive than other bank loans. Factorial operations have also become widespread in the export of products. With export factoring, the client enjoys a 100% guarantee of receiving all payments on his invoices. Factoring operations in market economies are carried out by special factoring companies, which, as a rule, are closely associated with banks or are their subsidiaries. Classic factoring, as it is carried out in Western European countries, is based on a commercial loan in the form of a deferred payment (from 30 to 90 days) for delivered products or the application of such a form to credit and settlement relations between seller and buyers, such as an open account. In this case, the supplier ships the products to the buyer, sending the goods release documents to his address, and debits the debt amounts to the account opened by him in the name of the buyer. Under an open account, the buyer repays his debt within the terms established by the contract (monthly, once a quarter or half a year). The provision of credit by the supplier to the buyer on an open account and the carrying out of settlements in the form of an open account are associated with the risk of non-payment or late payment for products, since the buyer, upon receipt of sales documents, does not issue any debt obligations to the supplier. Under these conditions, relationships between counterparties are risky for one or both parties. This risk is assumed by the factoring company (factor company). Factoring services contribute to the timely collection of debts and minimizing losses from late payments; prevents the emergence of doubtful debts; provides assistance to enterprises in managing credit, creates the best conditions for successful production activities, I which allows enterprises to increase turnover and profitability. I The factoring company, becoming the owner of unpaid claims, assumes the risk of their non-payment. The supplier, receiving payment from the factor firm on time, can plan settlements with its creditors, receiving from the latter a discount when paying the invoice within the specified time frame. The discount (or "skonto") for immediate payment of an invoice (within 5-10 days) is around 3% in many Western countries. Thus, the use of factoring speeds up the receipt of payments, guarantees debt repayment, reduces the cost of maintaining accounts and ensures the timely receipt of payments to suppliers in the event of temporary financial difficulties with the buyer. In modern conditions, the factoring service system includes providing the client with a variety of services, in particular accounting services, information, advertising, sales, legal, etc. Clients of a factoring company may refuse to maintain a staff of employees performing the same functions as the factoring company. This creates certain cost savings, which, combined with the benefits of lending, compensates for the rather high cost of servicing. Organization of factor services by commercial banks of our country. For commercial banks, factoring is a new, non-traditional type of service, which is gradually beginning to gain recognition among bank clients. Factoring operations must be carried out by specially created departments, and in small banks - by groups. It is not recommended to carry out factoring operations by employees of the operational department on a part-time basis, as well as one-time operations without concluding permanent contracts. This is due to the fact that factoring services include not only lending to the supplier, but also monitoring and control over its financial condition and the creditworthiness of its payers. The resources required by the factoring department can be generated from own and borrowed funds. The relationship between them is established by the bank's board. The factoring department receives its own funds from its bank, and in the future they increase due to profits from ongoing operations. Borrowed funds are formed by attracting funds from enterprises, deposits from other banks and loans from one’s own bank. Factorial customer service is provided on a contractual basis. Before concluding an agreement, the factoring department analyzes the supplier’s creditworthiness, collects and studies information about the financial condition of its debtors. In order to reduce the risk of factoring operations, the supplier from the position of the factoring department must meet the following requirements: produce products and services that are in demand and of high quality; have sustainable production growth rates; apply firmly established conditions for the sale of manufactured products. It is not recommended to carry out factoring operations according to the requirements of budgetary organizations; on debt obligations of private individuals; for the obligations of enterprises that do not use a bank loan or have been declared insolvent, as well as for the obligations of branches or divisions of enterprises; in compensation and barter transactions;

when paying for work in stages or in advance; under sales contracts, when the buyer has the right to return the products within the time stipulated by the contract, as well as subject to after-sales service.

More on topic 48. FACTORING OPERATIONS OF COMMERCIAL BANKS:

1. Economic characteristics of the resources of commercial banks
2. 54. Commercial banks, their role in the monetary system. Operations of commercial banks
3. 1.3.1. Credit operations of a commercial bank in the structure of banking assets
4. Leasing, factoring and trust operations of commercial banks in Ukraine
5. 4. Active operations of commercial banks and their classification. Contract credit.
6. 28. Active operations of commercial banks using the example of leasing and factoring
7. 27 Commission and intermediary operations of a “commercial bank”

- Copyright - Advocacy - Administrative law - Administrative process - Antimonopoly and competition law - Arbitration (economic) process - Audit - Banking system - Banking law - Business - Accounting - Property law - State law and administration - Civil law and process - Monetary law circulation, finance and credit - Money - Diplomatic and consular law - Contract law - Housing law - Land law - Electoral law - Investment law - Information law - Enforcement proceedings - History of state and law - History of political and legal doctrines - Competition law -

Factoring presupposes the availability of a commercial loan in commodity form, provided by sellers to buyers in the form of a deferred payment for goods sold and issued by an open account.

Factoring is a type of trade and commission operation combined with lending to the client’s working capital. A factoring company purchases customer accounts on the terms of payment of up to 90% of the cost of supplies and payment of the remaining amount minus interest on the loan within the agreed time frame, regardless of the receipt of payments from the debtors.

The most common types of factoring are:

With liability for the risk of insolvency and without recourse;

Without accepting the risk of insolvency, but with the right of recourse;

With financing at the time of purchase;

With financing at the time of payment due;

With accounts receivable management;

Without the right to manage accounts receivable.

In modern conditions, classical factoring involves full service of the supplier (open factoring without recourse). However, later it was supplemented and modified - factoring with recourse, closed factoring, and later other variants appeared.

To create a unified legal framework for factoring, the Convention on International Factoring was approved in 1988. Any international factoring agreement covered by the Convention is intended to include at least two of the following transactions:

Financing the supplier by providing him with advances and loans;

Accounting processing of supplier invoices related to assigned claims;

Receiving funds from debtors;

Protecting the interests of the supplier due to the insolvency of its debtors.

Thanks to the adoption of this Convention, the concept of factoring was unified, which opened up the possibility of expanding its application in the world.

In accordance with Art. 1 of the UNIDROIT Ottawa Convention on International Factor Transactions, a factor contract is a contract concluded between one party (the supplier) and another party (the factor firm, also called the “assignee”), according to which the supplier may or must assign to the assignee the obligations claims arising from contracts for the sale of goods concluded between the supplier and its customers (debtors), with the exception of those relating to goods purchased primarily for their personal, family or household use, and the assignee is obliged to assume at least the following two responsibilities listed below:

Supplier financing (loan or long-term payment);

Maintaining accounts for obligations;

Presentation of receivables for payment;

Protection against insolvency of debtors.

Factoring performs a number of functions (Fig. 12.4).

Rice. 12.4. Factoring functions

Among the economic advantages of factoring are:

– increasing liquidity, profitability and profit;

– turning accounts receivable into real money;

– the opportunity to receive a discount on immediate payment of supplier invoices;

– independence from debtors’ compliance or non-compliance with payment terms;

– possibility of expanding sales;

– saving equity capital;

– improvement of the financial planning system.

The systemic characteristics of the advantages of factoring are presented in Fig. 12.5.

Rice. 12.5. Advantages of factoring

The relationship between the factor firm and the supplier is governed by an agreement that specifies what type of service will take place. A factoring service agreement is usually concluded for a period of 1 to 4 years. It reflects the conditions under which operations will be carried out, in particular, details of payment requests, the share of the payment amount of the factor firm from the amount of payment requests, the procedure for implementing the operation, the maximum amounts for factoring operations, the amount of commission, conditions for terminating the factoring agreement.

Under a financing agreement for the assignment of a monetary claim, one party (financial agent) transfers or undertakes to transfer to the other party (client) funds to offset the client’s (creditor) monetary claim against a third party (debtor), arising from the client’s provision of goods, performance of work or provision of services to a third party, and the client assigns or undertakes to assign this monetary claim to the financial agent. The Civil Code of the Russian Federation establishes that financial agents can be banks and other credit organizations, as well as other commercial organizations that have permission (license) to carry out activities of this type.

The object of the agreement is a monetary claim ceded in order to obtain financing. The subject of the assignment for which financing is provided may be a monetary claim for which payment has already become due and a right to receive funds that will arise in the future.

The practical implementation of a factoring agreement begins with the assignment by the supplier of its unpaid payment claims to the factor firm. To do this, the supplier provides a copy of the payment request issued to the buyer; a telegram to the payer’s bank containing information about the completion of a factoring operation and a requirement to replace the name of the recipient (supplier) in the payment request with the details of the factor company. Factor companies study these documents and, if they comply with the concluded agreement, implement a factoring operation (open factoring).

The payer's bank, after receiving a telegram from the factor firm about the completion of the factoring operation, replaces the name and account number of the supplier in the payment request with similar data from the factor firm.

Factoring operations of various types are used in practice, in particular:

1. Domestic (if both parties to the purchase and sale agreement, as well as the factoring company, are located in the same country) or international;

2. Open (when the debtor is informed about the participation of a factoring commission in the transaction) or closed (confidential). The debtor is notified by means of an entry on the invoice, confirming that the factoring company is the legal successor for the arising debt, therefore, payments are made in its favor. With confidential factoring this is not the case;

3. With or without the right of recourse (requesting the supplier to reimburse the amount paid). This takes into account the risks that arise when the payer refuses to fulfill its obligations (credit risks). When concluding a factoring agreement with recourse rights, the supplier bears part of the credit risk on the debt claims sold by it to the factor firm. The latter has the right to take advantage of the possibility of recourse and, if necessary, sell the unpaid debt claim to the supplier if the client refuses to pay. This condition is fixed when suppliers are confident that they will not have doubtful debt obligations or they highly assess the creditworthiness of their clients, having an appropriate system of protection against credit risks, or taking into account the specifics of their clients. In such a situation, the supplier does not consider it necessary to pay for credit risk insurance services. However, the money guaranteed to the supplier can only be secured if a non-recourse agreement is entered into. If a debt claim is declared invalid, the factor firm always has the right of recourse to the supplier;

4. Subject to crediting the supplier in the form of advance payment (up to 80% of the debt claims assigned by him), or payment of claims by a certain date. The advantage of prepayment is that it is fixed as a percentage of the amount of debt claims, therefore, the supplier can easily receive more funds as sales volumes increase. In the absence of advance payment in the amount of assigned debt claims (minus costs), the money is transferred to the supplier on a certain date (or after a certain period).

In practice, a variety of options for factoring agreements are used. The range of services is characterized by comprehensive factoring services and the provision of individual services. The first includes financing supplies, maintaining accounting accounts for monetary claims that are the subject of assignment, advising the client, monitoring payment of invoices, protection against credit risks, etc.

Full factoring services are mainly used by newly created small enterprises. Universal services provided by a factoring company contribute to the implementation of an effective financial and risk management system at the enterprise.

Taking into account the requests of the supplier and the factoring company, many internal factoring agreements of various types are accepted. A full service agreement (open factoring without recourse) is usually practiced with stable contacts between the participants. Such servicing is designed to protect against the occurrence of doubtful debts and ensure an established cash flow; manage credit; sales accounting; lending in the form of prepayment or payment of the amount of assigned debt claims (less costs) by a fixed date.

A full service agreement can be with or without recourse. In the first case, the factor company does not insure the credit risk borne by the supplier. The company may return to the supplier debt claims for any amount not paid by customers within a certain period of time (usually within 90 days from the due date for payment). This agreement is implemented as payments are received from clients. In this case, the supplier cannot have the guaranteed cash flow that is typical for full service without recourse.

When the supplier is not interested in concluding an open agreement, but intends to receive the full range of services from the factoring company, in other words, wants to enter into a closed (agency) agreement for full services, the factor company can act through a special sales company, thanks to which orders will be placed and in whose name invoices will be issued. In this case, you can avoid notifying clients about the assignment of rights. The firm retains ownership of goods and invoices, handles accounting and collection of debt claims, and provides credit risk protection similar to full service.

Forfeiting has many similarities with factoring - export lending through the acquisition, without recourse to the seller, of commercial bills accepted by the importer, as well as payment claims for foreign trade transactions. Here, the risks of the exporter are transferred to the forfaiter, who, while respecting his interests, seeks to obtain a guarantee from the bank of the importer’s country. To hedge against currency risk, forfaiters usually purchase claims in the strongest currencies. To guarantee receipt of payments, the foreign exchange legislation of the importing country and the latter’s ability to fulfill foreign exchange obligations are systematically analyzed. The exporter is responsible for the legal aspects of the requirements: to deliver quality goods and ensure fulfillment of contractual obligations.

The discount rate for forfaiting transactions is different and is determined depending on the category of currency debtors and the terms of the loan. Forfaiting is usually more expensive than other forms of lending. Its advantage is the simplicity of completing the transaction and the transfer of all risks to the forfaiter.

A characteristic condition of lending is the repayment of debt over periods in equal shares. Hence, credit risk decreases as the loan is repaid. With a bill of exchange loan, bills of exchange are used with different maturities, usually at six-month intervals. The currencies of the bill are US dollars, Swiss francs, and German marks. The forfaiter buys bills from the exporter at a discount (minus the amount of interest). The size of the discount depends on the importer's solvency, the term of the loan and market interest rates in a particular currency.

Although the costs of forfeiting are higher than other forms of lending, its advantages outweigh the disadvantages. In particular, forfaiting guarantees the following positive aspects for the exporter:

Elimination of problems in arranging a loan and receiving payment (reducing costs);

Freeing the balance sheet from contingent liabilities and improving liquidity as the exporter increases its capacity as a borrower;

Elimination of interest rate risk, risk of changes in exchange rates or debtor status:

Speed ​​of registration, the ability to take advantage of differences between individual financial centers;

The right to include forfaiting costs in the price of the goods when contacting the forfaiting bank during contract negotiations.

Usually, during negotiations with the importer on the delivery of goods on installment payment terms, the exporter contacts a bank (forfaiting company), which can buy bills from him on forfaiting terms. Depending on what the forfaiter bank offers, the exporter determines the price of the goods and the interest rate for installment payment. Since the discount rate for forfaiting is greater than the interest for the loan, the exporter includes the difference in the price of the goods. The importer negotiates an aval with his bank. After this, a foreign trade contract is signed. Having shipped the goods and completed the documents, the exporter sends them through his bank to the importer's bank. The importer issues a bill of exchange, endorses it at the bank and receives documents for the goods. The exporter accounts for the bill of exchange in the bank marked “without negotiability.” Upon maturity, the forfaiter forwards the bill to the avalist bank for payment.

The absence of many risks (commercial, currency, country risk), the provision of a fixed discount rate by the forfaiter, and the release of the exporter’s balance sheet from significant and long-term receivables make forfaiting a profitable operation for the exporter. Some Russian commercial banks, along with export factoring, offer their clients forfaiting services, emphasizing their willingness to buy bills of exchange from Russian exporters of machinery and equipment, avalized by correspondent banks. The participation of Russian banks in forfeiting is associated with the avalorization of bills issued by Russian buyers of machinery and equipment. To achieve this, Russian banks sign special interbank agreements with foreign banks for forfeiting transactions.

Russian companies participating in export-import transactions using forfaiting lending are required to obtain a license from the Central Bank of the Russian Federation for the right to carry out transactions with securities in foreign currency. The maximum terms of forfeiting loans in Russia do not exceed one year.

There are many similarities between export factoring and forfaiting. In both cases, a loan in commodity form is transformed from an intercompany (commercial) loan into a bank loan. However, forfaiting services for an exporter are associated with medium-term (from 6 months to 5–7 years) or long-term lending for significant amounts, while factoring uses short-term (up to 120–180 days) financing of medium-sized contracts. Unlike forfaiting, with factoring the bank assumes only a certain share of the exporter’s risks. In addition, forfaiting is a one-time operation associated with the collection of funds for a specific document, and export factoring, as a rule, is based on permanent relations between the parties and comprehensive services. Forfeiting is also characterized by the presence of a secondary market, where resale of purchased commercial bills is possible. The general scheme of a forfeiting transaction is shown in Fig. 12.6.

Rice. 12.6. Forfeiting transaction scheme