chapter8 International Factoring

1、Chapter8 International Factoring 8.1 Origination and Development of Factoring 8.2 Definition of Factoring 8.3 Service Items of Factoring 8.4 Main Factoring Behavior 8.5 Main Feature and Function of Factoring 8.6 Basic Parties to Factoring 8.7 Procedure of Factoring 8.8 Types of Factoring 8.9 Advanta

2、ges and Disadvantages of Factoring 8.10 Puzzles when using Factoring in international trade 8.11 The International Customs and Practice for Factoring1. The origin of factoring:(1) Back to the industrial revolutionEngland Textile millsAmerica agenciesAmerica importers Appoint to sell productsSell the

3、 productsPay the productsRemit the proceeds (2) With the development of international trade and the intensification of competition, especially with the development of trade terms, transport means, financing method, and the existence of buyers markets, factoring has developed into a service package t

4、hat contains the credit investigation into the buyers, ledger bookkeeping, management of accounts receivable and risk protection. 2. The development of factoring:In the 1950s, it was only confined to the United States.by the 1960s, domestic factoring could only be found in North America and several

5、countries in Europe. Today factoring has become a common business practice on every continent around the world. 1. General Rules for International Factoring:a factoring means a contract pursuant to which a supplier may or will assign accounts receivable to a factor for financing export trade, ledger

6、ing receivables, collecting proceeds and/or protecting against bad debts.2. Convention on International Factoring:the factor is to perform at least two of the following functions: finance for the supplier, including loans and advance payments; maintenance of accounts(ledgering) relating to the recei

7、vables; collection of receivables; protection against default in payment by debtors. When the seller and the buyer are in different countries, the service is called international factoring. 3. factoring contract: A factoring contract is an agreement between the factor and the seller. under which the

8、 factor purchases the sellers accounts receivable, normally without recourse, and assumes the responsibility for the debtors financial inability to pay.1. Financing for the supplier, including loans and advance payment:(1) Approval of a line of credit;(2) Approval of specific invoice;(3) Declination

9、;(4) Limited approval.2. Maintenance of accounts receivable ledgering.3. Accounts receivable collection.4. Protection against buyers credit risk ApprovalAssignmentFinanceReassignmentIssuing credit notice1. the main feature of factoring:It is applicable to open account and D/A terms; It is always ini

10、tiated by the exporter, and the importer always locates in developed countries or areas; The factor will only protect against the importers credit risk, regardless of commercial risk and country risk; The factor service is always conducted on the basis of non-recourse.2. the functions of factoring:I

11、t increases sales in foreign marker by offering competitive terms of sales;It protect against export credit losses; It accelerate cash flow by more efficient collection method, the transaction party will be involved lower costs compared with Letter of Credit;It can increase liquidity to finance work

12、ing capital and to enhance the exporters borrowing potential. SupplierExportFactor DebtorImport FactorSupplier DebtorExportFactor ImportFactor17581321249611103 1. The supplier and the export factor sign a factoring contract, entrusting the export factor to investigate the suppliers creditworthiness

13、and to approve a credit line. 2. The export factor notifies import factor of the factoring contract and entrusts it to investigate the debtors creditworthiness. 3. The import factor investigates the debtors credit. 4. The import factor notifies the export factor of the information on the creditworth

14、iness of the debtor and the approved credit line. 5. The export factor notifies the supplier of the result of the investigation and the approved credit line. 6. The supplier signs the sales contract with the debtor, and the invoice value should be limited within the credit line approved by the facto

15、r, and then the supplier ships the goods to the debtor. 7. The supplier submits the invoice copy to the export factor for finance. 8. The export factor advances about 85% of the invoice value to the supplier. 9. The export factor transfers the invoice copy to the import factor. 10. The import factor

16、 duns the debtor to effect payment periodically. 11. The debtor effects due payment to the import factor. 12. The import factor remits the proceeds deducting the relative charges to the export factor. 13. The export factor pays the supplier for the rest 15% of the invoice value after deducting the r

17、elative charges.Single FactoringCo-Factoring Recourse Factoring Non-Recourse Factoring Financed FactoringMaturity FactoringDisclosed FactoringUndisclosed FactoringFull Service FactoringPartial Service FactoringThe SupplierTrade on Open Account and D/A terms with a much lower risk;Understand the buye

18、rs creditworthiness;Expand sales abroad;Accelerate the cash flow and expand export sales.The DebtorBe concerned, deferred payment;Expand their purchasing power without using existing lines of credit;Get the goods with stipulated quantity and quality. Reduce the complex procedures for letter of credi

19、t application, which will increase the buyers operation efficiency. 1.advantagesThe Supplier The factor will protect only against the debtors credit risk;When the business situation deteriorates, the moral hazard of the debtor may occur to raise disputes intentionally, escaping from payment. The Deb

20、torShould pay more for the goods because the higher fee of factoring. normally it will be 1%-3% of the cargo value.2.disadvantagesComparison ItemsFactoring D/AO/AL/CBuyers Credit Risk GuaranteeYesNoNoYesBuyers ExpenseNoYesNoYesSuppliers ExpenseYesYesYesYesBuyers Credit Line Occupation NoNoNoYesFinan

21、cial Flexibility to Buyer HighHighHighLowSuppliers Competitiveness HighHighHighLowComparison of Factoring with D/A, O/A and L/C 1.One may wonder, if factoring are adapted, whether the buyer will consider that he is not trusted by the seller and his financial position is unsatisfactory. 2.One may wonder whether such a payment method can assure the prompt collection of the proceeds. 3.One may wonder that as letter of credit is a very good payment method for him to use, why he