Factoring

 

Description


When to apply factoring?

You are a seller (exporter) and:

• You are working with a number of permanent buyers (importers);

• You are trying to act with more competitive terms and conditions, offering a deferred payment term (e.g. prolongation of payment for up to 90 days) and to increase the volumes of your sales;

• You have accounts receivable but periodically some financial difficulties arise and it is required to get cash funds;

• You are ready to “sell” your accounts receivable and to cash the money to be received in future against a certain payment.

 

ACBA-CREDIT AGRICOLE BANK offers applying financing (factoring) against the waiver of the claim for money. Factoring is financing the seller (exporter) against the waiver by the client of the claim for money against the debtor resulted from supplying to the third party (the borrower) goods, from performing works for the borrower or from providing him/her services by the seller (exporter).  

Factoring is:  

  • Alternative option of financing that does not entail a new liability;
  • Financing without mandatory collateral;
  • Method of converting accounts receivable into cash funds;
  • Method of managing accounts receivable, risks and cash flows, attraction of financial resources by using the solvency of the buyer.

Advantages

 

Advantages of factoring for the seller (client):

  • possibility for sale with a deferred payment term, and, consequently, for making a more competitive offer, increase in the market share;  
  • possibility of attracting floating assets against the waiver of accounts receivable and increase of the liquidity level;
  •  continuous increase in financing parallel to the increase in the sales;
  •  increase in the production and/or sales volumes, goods turnover level due to financial sources received on time;  
  • increase in the liquidity level through converting accounts receivable into cash more quickly;  
  •  reduction in possible losses caused by the fluctuations in exchange rates;
  •  attraction of financial sources without obligatory securing by pledge.  

 

Advantages of factoring for the buyer (debtor)

  • receiving goods and services from the seller with deferred payment term;
  • possibility to dispose of temporarily available assets generated due to the deferred payment term without attracting credit funds;  
  • reduction of  costs related to the payment for the goods, works or service (the seller pays for the factoring service);  
  • making purchases with the deferred payment term and, consequently, increase in the purchase volumes.  

 

 

Types

 

The bank provides the following types of factoring:

  • domestic factoring- when both the client and the debtor are RA resident legal entities or private entrepreneurs.
  •  export factoring- when the client is the RA resident legal entity  or a private entrepreneur, and the debtor- a nonresident legal entity or a private entrepreneur;  
  • recourse factoring (with a recourse right) –is a factoring under the condition that in case the debtor  fails to comply with his/her  payment liabilities or complies with them improperly the Bank acquires a recourse right towards the client;
  •  non-recourse factoring (without recourse right) is a factoring under the condition that the Bank bears all the risk related with the debtor’s failure to comply with its payment liabilities or  improper compliance therewith  without a recourse right towards the client. 

 

Disbursements terms and conditions

 

The main terms and conditions for factoring to be provided by the Bank:  

  • The Bank provides factoring to the RA resident legal entities and private entrepreneurs that are the Bank’s clients;  
  • The Bank provides domestic factoring in AMD and export factoring- in foreign currency depending on the currency of the given transaction; 
  • The validity term of the maximum limit of the client’s financing by factoring is 18 months;   
  •  The maximum amount for factoring  is 90% of the amount of the invoice in case of domestic factoring and 80% of the invoice, in case of export financing; 
  •  The maximum duration of factoring is 180 calendar days. 

Against the client’s waiver of the claim for money after the Bank finances and after the debtor fully complies with his/her liabilities within the established terms, the Bank performs final calculation on the same day and transfers the remaining part (non financed part) of the amount due against the waiver of the claim for money with the accrued interests and fines deducted to the client’s bank account. 

FAQ

 

1.  What’s the difference between factoring and the credit?

- The credit is provided for a certain fixed term while factoring is provided for the term of the actual deferred days of payment;

- The credit funds are returned by the borrower while the amount of the factoring is repaid from the amount paid by the debitor;

- In case of a credit, as a rule, collateral is required while the factoring is secured by the claim for money;  

- Credit funds are reflected in the balance sheet as loan funds, while the financing by factoring is reflected in the balance sheet as commercial revenue;

- in case of providing a credit the solvency of the borrower is taken into basis, while in case of financing by factoring  the buyer’s solvency is taken into basis;

 - the credit funds are provided in one or two stages, while factoring is performed  upon necessity;
- crediting does not presume provision of other services and factoring  is not financing only but  rather  a  complex of additional services.

2. Who the recourse factoring is designated for?  

- Recourse factoring is designated for those who trust in their buyers and, consequently, there is no need for paying more expensively (recourse factoring is cheaper).

3.  Won’t the buyers be afraid of the fact that the seller started to apply factoring?  
-  The reliable buyers that comply with payment terms can have only a positive attitude towards factoring. Let us mention also the fact that due to factoring itself the seller often provides the buyer with a longer deferred term. Using factoring is expedient not only for the seller but the buyer, as well, since  due to factoring  the buyer receives credit for goods, permanently ensures a variety of goods, temporarily has additional available funds.

4. Can factoring be applied in the sphere of services?

- Sure, factoring can be applied in case of providing services with deferred payment term.  
5. What happens if the debitor does not pay for the goods supplied to him/her if the transaction was financed by factoring?

- In case the buyer does not pay the amount two options are possible first of all depending on the type of factoring (recourse or non-recourse factoring) In case of recourse factoring the seller is obliged to pay the amount not paid by the buyer  to the Bank instead of the buyer, and in case of  non recourse factoring  the Bank should solve the issue of collecting the overdue liability itself bearing all the risks.

6.  What is factoring required for if one can use overdraft which is a cheaper bank service?

- Overdraft is a type of credit the amount of which is returned to the Bank by the borrower, while in case of factoring the financed amount is repaid by the payments made by the buyer. The fact that in case of the overdraft the credit limit is calculated based on the revenues of the given company is very important, while in case of factoring the main attention is paid to the potentials of the company and the sales volumes in future.

7. Will the Bank provide factoring against overdue accounts receivable?

- The Bank can provide factoring exceptionally for not overdue accounts receivable.

 8. Which is the advantage of factoring over the credit?  

- Virtually we speak not about advantage but rather about the fact that they meet different requirements of the client. First of all, factoring is a tool that provides for increase in the volumes of sales without a risk of increase in the overdue accounts receivables.

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