Factoring services. What is factoring in simple terms? Scheme of work in Russia

Factoring occupies a special place among the huge number of credit products for small and medium-sized businesses. Such a service allows sellers of goods to protect themselves from non-payments, and buyers - to guarantee themselves uninterrupted supplies even with a lack of funds in their accounts. Factoring service has both pros and cons, we will consider them in more detail below.

Factoring - what is it in simple words

Factoring services include a whole range of services for financing and evaluating the parties to transactions, as well as its own supply and payment control system.

The essence of factoring financing

For those companies that carry out wholesale purchases in small batches on a regular basis from one seller, lending with conventional loans is inconvenient and unprofitable. The overdraft system allows obtaining small amounts of loans, but significantly increases the company's expenses due to high interest rates.

Therefore, supplying companies are interested in attracting a bank or factoring company (factor) as a paying party under supply contracts. In this case, the buyer becomes the debtor of the factor in the amount of delivery and returns the funds to him.

At the same time, the seller receives several advantages at once:

  • elimination of cash gaps;
  • the possibility of uninterrupted implementation of production and sales cycles;
  • additional guarantees for making payments;
  • obtaining information about the debtor's solvency.

Factoring can be carried out in two ways: with regression or without.

Regression means the ability for a bank or factoring company to return claims for payment of factoring payments to the seller. In other words, if the buyer did not pay for the delivery on time, the seller returns the debt to the factor. Mutual settlements between the seller and the buyer after the closure of the debt for factoring financing, the bank no longer controls.

It is worth highlighting separately factoring without notice... In this case, the debtor himself is not notified that deliveries and settlements now occur through factors. Funds can be transferred to the seller's current account in the factor bank.

Most often, the seller applies for the conclusion of a factoring agreement. With the help of the factor, companies expect to compensate for losses from delays in payments to the buyer, while developing cooperation with him on a deferred payment basis. But sometimes a buyer applies for factoring services. In this case, the procedure for purchasing wholesale lots of goods is financed, and the type of factoring itself is called reversible or purchasing.

Video - what is factoring:

Bank factoring system

Factoring financing is carried out if there is an agreement between the seller and the debtor, enshrined in the supply agreement, on a deferred payment for up to 180 (sometimes up to 240 days) from the date of delivery.

In this case, the bank pays the seller funds in the amount of up to 90% of the value of all goods on the consignment note, and the debtor, in turn, transfers the entire amount of the debt to the factoring account in the bank.

The bank, having received the transfer, charges a service fee, for processing data on invoices, interest on the amount of financing for the actual number of days of using credit funds. After that, the main financing debt is extinguished from the amount received, and the remaining funds (if any) are transferred to the seller.

The Bank finances factoring transactions in several stages:

  • assessment of the solvency of buyers and sellers according to internal bank regulatory documents;
  • signing an agreement on factoring services, as well as related documentation (bank account agreements, sureties, etc.);
  • sending to buyers (debtors) notifications about the need to transfer funds to a specialized account opened with a bank in the name of the seller;
  • acceptance from the seller of consignment notes and invoices for the shipped consignments of goods, assessment of the supply agreement and its compliance with the conditions of the invoice, entering supplies into the database;
  • transfer of the financing amount to the seller's account, intra-bank accounting of the volume of claims and payments;
  • tracking overdue deliveries (that is, those for which the deferred payment has already ended, but payment has not been received from the debtor), sometimes in this case the client can confirm in writing the closure of this delivery, and no recourse will be made
  • receiving incoming payments from the debtor, posting them to deliveries, accounting for interest paid and returning overpaid funds to the client.

Factoring company

It is not so important who finances - a bank or a factoring company. The main difference between a bank and a factoring company is its work standards.

If a bank can simultaneously provide various services for maintaining accounts, carry out transfers between the accounts of a client and a debtor, then a factoring company can provide a wide range of services for insurance of payments, their support, tracking supplies (including abroad), etc.

The factoring company, in parallel with financing, provides full support for receivables, participates in resolving disputes with debtors.

Small business use

The SME segment is one of the most sensitive to cash shortages due to low capitalization and a lack of equity capital. That is why factoring is especially in demand in small businesses, as an alternative to bank lending and an additional guarantee of the reliability of transactions.

The main advantages of factoring for this business segment:

  • availability of credit funds;
  • absence or minimum amount of additional payments and commissions;
  • the ability to accelerate the turnover of funds, thereby receiving additional profit;
  • minimizing risks from establishing relationships with new customers;
  • the ability to flexibly change the policy of actions on the market, attracting customers on favorable and convenient terms of deferred payment.

Pros and cons

Even in times of crisis, banks are constantly developing a list of credit products for business, allowing entrepreneurs to use borrowed funds for development with minimal costs.

Many of these offerings are too expensive or out of reach for small businesses.

Factoring helps to use credit funds with maximum benefit and minimum overpayment.

However, this product has its own limitations:

  • quite high price - about 15-20% per annum;
  • the need to provide information about debtors;
  • limited financial flow by sales;
  • in factoring, only deliveries are used that are settled in a non-cash form.

Positive sides there is much more factoring:

  • lack of collateral;
  • the ability to transfer control over accounts receivable to a third party; banks and factoring companies take into account all supplies on their accounts, even those for which financing is not carried out;
  • large factors create a special user interface for their program, allowing the client to independently track any changes in accounts receivable;
  • factoring financing is not considered credit funds and does not affect key indicators of the company's balance sheet;
  • banks do not impose strict conditions on the supplier's solvency;
  • when concluding a factoring agreement without recourse, the factor bears the risks of non-payment from the debtor, while the business is guaranteed timely receipts to the account;
  • reducing cash gaps allows you to plan financial flows more efficiently.

Factoring, calculation example

Let's consider the simplest example:

The seller delivered goods to the buyer on January 1 for a total of 100,000 rubles. The bank finances 90% of the delivery amount. Rate - 15% per annum, additional payments - commission for processing an invoice in the amount of 50 rubles per item. Deferred payment - 180 days. The debtor paid off on January 21st.

After processing the invoice, the company will receive from the bank: 100,000 * 0.9 \u003d 90,000 rubles.

The commission for using factoring funds will be:

(100,000 * 0.9 * 0.15) / 365 * 20 \u003d 739.73 rubles

Total overpayment for delivery: 739.73 + 50 \u003d 789.73 rubles.

After the debtor transfers the debt to the bank, the factor will return to the seller's account:

100,000 - 90,000 - 739.73 - 50 \u003d 9260.27 rubles.

Factoring rates are quite high. However, the opportunity to use funds from the client today, without waiting for payment at the end of the grace period, is more than compensated for by a small overpayment for a short period of using the factor funds.

Video - what is factoring in simple terms:

Types of factoring

There are many types of factoring services that differ from each other primarily in the degree of risk that the factoring company assumes.

Non-recourse factoring (eng. non recourse factoring) - a type of factoring, in which the factor acquires the right from the client to all amounts due from the debtor. If it is impossible to recover the amounts from the debtor in full, the factoring company will suffer losses (albeit within the framework of the financing paid to the client).

Factoring happens open (with notification of the debtor of the assignment) and closed (without notice). He also happens real (the monetary claim exists at the time of signing the contract) and consensual (the monetary claim will arise in the future).

With the participation of one Factor in the transaction, factoring is called direct, in the presence of two Factors - mutual .

When classifying the types of factoring, it is worth paying attention to invoice discounting, although it has a number of significant differences, despite the fact that it contains features of closed regression factoring.

Factoring called internal (domestic factoring), if the parties to the purchase and sale agreement and the factoring company are located in the same country.

Factoring is called external (more often the name international factoring) (international factoring), if the supplier and his client are residents of different countries.

Legal regulation of factoring

A factoring contract is understood by the convention as a contract concluded between one party (supplier) and another party (financial agent), in accordance with which:

  • the supplier must or may assign to the financial agent monetary claims arising from contracts for the sale of goods concluded between the supplier and his buyers (debtors), with the exception of contracts that relate to goods purchased primarily for personal, family and home use;
  • the financial agent performs at least two of the following functions:
    • supplier financing, including loan and prepayment;
    • keeping records (books) for the amounts due;
    • presentation of monetary claims for payment;
    • protection against insolvency of debtors;
  • debtors must be notified of the assignment of the claim.

The Russian Federation is currently not a party to the convention. In Russia, factoring appeared only in March, when Part Two of the Civil Code was adopted.

Article 824 of the Civil Code of the Russian Federation gives the following definition of factoring as financing against the assignment of a debt claim, the very definition of factoring is absent. Under a financing agreement against the assignment of a debt claim, one party (financial agent) transfers or undertakes to transfer funds to the other party (client) against the client's (creditor's) monetary claim against a third party (debtor), and the client assigns or undertakes to assign this monetary claim to the financial agent ... The monetary claim against the debtor may be assigned by the client to the financial agent in order to ensure the fulfillment of the client's obligations to the financial agent.

In other words, the actual debts (monetary claims) can be sold by the creditor to a certain person who has free cash (financial agent), who undertakes to pay the client (creditor) the debt of a third party due to him, minus his own interests and commission. And when the due date for the specified amounts comes, the financial agent will collect them from the debtor. Factoring company commission usually consists of several components - service commission, interest on money, credit risk commission and delivery registration.

The law distinguishes between two types of monetary claims that can be the subject of an assignment: the due date for which has already arrived, that is, the actual debt, and payment obligations, the due date for which has not yet arrived (future claims). ..

Benefits of factoring

Thanks to the factoring agreement, the supplier can immediately receive payment from the factor for the shipped goods, which allows him not to wait for payment from the buyer and plan his financial flows. Thus, factoring provides the company with real money, contributes to the acceleration of capital turnover, an increase in the share of productive capital and an increase in profitability. In addition to financing current assets during factoring, the bank covers a significant part of the supplier's risks: currency, interest, credit and liquidity risks.

At the same time, the creditor, concluding a factoring agreement, gets the opportunity to repay the debt after a longer period compared to a commercial loan (in some cases, the debt is prolonged for additional obligations), partial debt repayment is also allowed, which stimulates the purchase of goods through factoring companies.

Commercial banks and factoring companies use factoring to expand the range of services they provide and increase their profits.

History

Factoring operations were initiated by the company established in England back in the 17th century. House of Factors. The factor who knew the product market, the purchasing power of buyers, the laws and trade customs of a given country, were tasked with finding reliable buyers, storing and selling goods, as well as the subsequent collection of trade proceeds.

However, the rapid development of factoring activity was observed in North America only in the second half of the 19th century. At the same time, initially, American factors only accepted goods from manufacturers for sale. This was especially evident in the textile trade. But over time, in connection with the introduction of high customs duties on textiles in Europe, manufacturers began to create their own systems for marketing their products on the European market, which included elements of production. As a result, American factors were forced to change the form of their activities, transforming from intermediaries in the sale of goods (agent factoring) to institutions that finance producers of goods (credit factoring). They also developed their know-how on the method of financing clients, which included the discount and execution of monetary claims received from clients, as well as taking on financial risks. Factors in the scope of their activities also included accounting for manufacturers, making cash advances against future receipts from counterparties and providing loans for the purchase of raw materials and financing of production. Thus, American factors began to carry out activities typical of banking organizations. This scheme has taken root so well in the United States that currently 90% of textile manufacturers use a factoring scheme.

In the early 60s. of the last century, the expansion of American manufacturers into Western Europe began, which led to the intensification of the activities of European factoring companies. By the middle of the 60s. two major factoring associations were created: IFG (International Factors Group) and FCI (Factors Chain International). The volume of factoring operations has steadily increased, the number of factoring companies operating both in the domestic and international markets has increased. This process continues to this day. According to the FCI, the world turnover of factoring operations increased from 1996 to 2001 more than 2.3 times, amounting to 720.19 billion euros, with more than 96% of the volume of factoring accounted for by domestic factoring.

The need to unify the regulation of factoring activity due to the partially international nature of its use led to the convening in Ottawa in 1988 of a diplomatic conference on the adoption of draft conventions on international factoring and international financial leasing, which were prepared by the International Institute for the Unification of Private Law (UNIDROIT). One of the final documents of this conference was the UNIDROIT Convention on International Factoring, signed on May 28, 1988.

This Convention has played a significant role in the development of factoring activities, since the national legislation of many states did not contain practically any rules governing factoring. It served as the basis for the development of national legislation in this area; after its adoption, a number of states introduced factoring into their civil law system.

The Civil Code of the Russian Federation since January 26, 1996 contains the 43rd chapter devoted to factoring relations, which are referred to as "financing against the assignment of a monetary claim."

Factoring in Russia

In the USSR, factoring was introduced in 1988 as an experiment by Promstroybank and Zhilsotsbank. Due to the complete absence at that time of any methodological literature and the impossibility of gaining access to world experience, the essence of this service was somewhat perverted. Only overdue accounts receivable were assigned to factoring departments, the agreement was concluded with both the supplier and the buyer, and the former was guaranteed payments by crediting the buyer. Factoring services were in the nature of one-off transactions without providing a complex of insurance, information, accounting and consulting services implicit in factoring.

Credit and factoring

Compared to lending, factoring has a number of significant advantages:

  1. Collateral security. Unlike lending, where, in most cases, mandatory material collateral is required (fixed assets, goods in circulation, raw materials, etc.), in factoring operations, the collateral is the company's receivables.
  2. Assessment of the financial condition. Strict requirements for the financial condition of the company and the quality of financial statements are less likely to influence the positive decision of the issue in factoring than in lending. Factoring companies are more interested in the quality and diversification of the supplier's receivables.
  3. Flexible scheme of work. Unlike lending, factoring does not tie the hands of CFOs in this way with strict time frames (when lending is mainly used a one-time or according to an approved schedule, a loan drawdown and similar repayment). Factoring financing is carried out upon shipment of goods to approved debtors and is actually proportional to the volume of sales. Repayment of factoring financing is carried out at the time of payment for the shipped goods by debtors.
  4. High rates of sales growth. More "flexible" and constant financing for factoring, combined with effective management of accounts receivable, allows for a faster increase in the company's turnover. Upon shipment of the goods to the approved debtors, 90% of the amount of each delivery is financed. Thus, the amount of financing grows in proportion to the volume of sales.

Even the simplest calculations show that, under equal conditions, factoring makes it possible to increase trade turnover 2 times faster within one year than with lending to replenish working capital. Using factoring with the receipt of financing from the Factor immediately after the shipment of the goods, you will always have the funds for the production / purchase and sale of goods, without waiting for the receipt of payment from buyers for the previously shipped goods.

Moreover, factoring is not only about financing. The full range of factoring services includes the management of accounts receivable, coverage of a number of risks (loss of liquidity, credit, inflation, currency), information and analytical services (special IT, allowing to control cash flow, the current state of accounts receivable, payment discipline of buyers, plan daily financial flows companies and generate analytical reports for making management decisions). The listed services form the added value of factoring, which distinguishes factoring from conventional lending.

Comparative characteristics of factoring, credit and overdraft

Factoring Credit Overdraft
Repaid from money received from the client's debtors. Returned to the Bank by the borrower Returned to the Bank by the borrower
Paid for the period of the actual payment deferral (up to 90 - 120 calendar days) Issued for a fixed period. Tough terms are set for the use of the tranche, as a rule, not exceeding 30 days
Paid on the day the goods are delivered On the day specified in the loan agreement The term of the contract is limited
The transition of the company to settlement and cash services in the Bank is not required The Bank may include in the loan agreement a condition on the borrower's transfer to settlement and cash services to the Bank
No collateral required The bank may require the provision of collateral for the loan and / or oblige the borrower to provide turnover on the current account adequate to the loan amount It is envisaged to maintain a certain turnover (5: 1) for the current account. No collateral required
The size is not limited and can increase as the client's sales grow Issued for a predetermined amount The limit is set at the rate of 15-50% of monthly loan receipts to the borrower's current account
Redeemed on the day the debtor actually pays for the delivered goods Redeemed on a predetermined day All credit receipts are automatically debited from the current account to repay the overdraft and interest on it
Factoring financing is paid automatically upon submission of the invoice and invoice To obtain a loan, you need to draw up a huge number of documents To obtain an overdraft, you need to draw up a large number of documents
Continues indefinitely Repayment does not guarantee you will receive a new one
Accompanied by a service that includes: accounts receivable management, coverage of risks associated with deliveries on a deferred payment basis, consulting and much more When lending, in addition to providing funds to the client and cash settlement facilities, the Bank does not provide the borrower with any additional services In case of overdraft, in addition to providing funds to the client and cash settlement facilities, the Bank does not provide the borrower with any additional services

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Notes

Factoring is a banking service for suppliers working on deferred payment terms. Factoring operations allow creditors not to accumulate receivables in the short term and plan cash flows, and the bank - to make a profit.

In this article we will give basic definitions and try to visually understand this scheme.

Basic concepts

Factoring is a set of services of a financial nature for a supplier in exchange for the assignment of the debtor's debt for the shipment of products or the provision of any services. In other words, factoring can be classified as financing against the assignment of a monetary claim, or defined as sales crediting for a supplier.

A factoring organization or a bank pays its client money for the products sold instead of the buyer, and he transfers the right to claim receivables to the agent. As a result, both parties get their benefits: the creditor has real money, and the bank earns on operations - part of the debtor's debt plus commission.

There are three actors involved in a factoring operation: an agent (or factor) - this role is played by a bank or a specialized firm, the supplier (or creditor) and the buyer (or debtor).

The factor lends to the client by buying out receivables from him, usually short-term. They sign an agreement with each other, according to which the supplier provides the factor with invoices and other documents. Documents are provided as the requirements for the buyer are formed and confirm the shipment of the goods, its amount and the occurrence of accounts receivable. The factor discounts the confirmed amount and transfers part of the money to the supplier. The amount is usually limited to 90%. When the buyer makes the payment, the factor pays the rest of the amount to the lender, after deducting the interest on the loan and the service commission.

Usually the factor takes on issues related to the management of accounts receivable: accounting and analysis, monitoring of the buyer's solvency. Factoring companies hire only those counterparties with whom the supplier is able to confirm the relationship with solid contractual relations and decent statistics of shipments and payments, since factoring is considered, although highly profitable, but at the same time a very risky operation.

You can look at the following video in more detail about this term:

Its types

Factoring operations are classified according to several criteria:

  • The type of contract is distinguished open and closed... Open factoring involves notifying the buyer that the receivable has been assigned to the factor. All three parties are involved in the calculations, and the debtor pays his debt to the factor. Closed factoring assumes that the seller himself makes settlements with the debtor. In the future, the supplier must transfer money to the factor's account. It turns out that the buyer will not receive notification of the contractual relationship between the other two parties.
  • By residence, the parties share internal and external... If the parties to the relationship relate to residents of one country, then the operation is classified as internal factoring, if the contract was concluded by business representatives from different countries, then - external or international. In international transactions, two factors are possible, then such factoring is mutual, if one factor is direct.
  • Factoring is possible under the terms of payment with and without regression... Carrying out a recourse operation means that only the risk of late payment is transferred to the factor, that is, after a set time, he has the right to demand from the supplier to return the money he received earlier. A non-recourse operation means that all risks are transferred to the agent, and he has the right to demand payment only from the buyer.
  • According to the date of occurrence of the requirement, real(when debt already exists) and consensualfactoring (when debt arises in the future).

Factoring transactions can also be classified depending on the party that initiated such calculations. This is usually the supplier. There is also reverse factoring, when the buyer himself becomes the initiator.

Difference from forfaiting

Factoring is often confused with forfaiting, which is also a specific type of lending for trade transactions. Forfeiting assumes that the agent / forfaitor buys from the lender commercial promissory notes of its borrower.

Among the main differences are:

  • the main use of forfeiting is registration of foreign trade transactions between business representatives of different countries;
  • the absence of the possibility of recourse during forfeiting, that is, all risks under the obligation are transferred to the forfactor, which in this case no longer has the right to turnover to the supplier;
  • forfeiting is characterized by long-term liabilities in large amounts, the use of factoring is beneficial in the case of short-term debts with smaller amounts;
  • the forfeiting process necessarily takes place with the participation of a forfaitor;
  • in case of forfeiting, the entire amount is paid; in case of factoring, part of the total amount is frozen.

Scheme of work in Russia

Factoring services in Russia have developed relatively recently, so the field of such financing in our country is quite young. Attempts to introduce factoring operations were undertaken back in the late 80s, but the lack of methodological developments and international experience during the Soviet era led to the fact that the essence of these services was completely distorted. Factoring has been further developed since the mid-90s, the Association of Factoring Companies was created only in 2007.

The main players are:

  • Promsvyazbank and its subsidiary PSB-Factoring.
    The bank has been working with such operations since 2002, the range of services is quite wide: factoring with and without recourse, domestic and international, both for export and import. Since 2008, has been the market leader in terms of transaction volumes. At the end of 2013, he was recognized as the market leader in the segments of external factoring and services for small and medium-sized businesses.
  • Russian factoring company.
    It has been successfully operating in the financial services market since 1993 (previously it worked under the name "Fintech", transformed into its current form since 2008). It is among the leaders in terms of the volume and number of transactions. It offers services both for suppliers (for supplying the network, for manufacturing products, for increasing sales) and for buyers (for purchasing raw materials and goods, for expanding network retail, factoring of a reverse type).
  • VTB-Factoring.
    A daughter of one of the largest banks in Russia. Offers services in two areas: internal recourse factoring and factoring for suppliers with financing up to 95%. In 2014, signed with the Asteros group the first in Russia contract for factoring licensing agreements (software supply for 370 million rubles).
  • Factoring company "Life".
    Specializes in express factoring for small / medium-sized businesses. Provides corporate factoring services, including non-recourse. The emphasis is on an integrated approach and information support.
  • Sberbank.
    Provides services for small businesses relatively recently. The main advantage is a large branch network.

Services are provided by other banks and organizations, among the leaders it is also worth noting Alfa-Bank, Bank Petrocommerce and National Factoring Company... Business representatives can easily find the right offer for their situation.

Example of factoring operation

The company OOO Computer, which supplies computer equipment and components, signed a contract with OOO Customer on September 1 for the supply of equipment in the amount of 1.2 million rubles. with the condition of payment 30 days from the date of shipment.

On September 5, Computer LLC shipped goods according to the specification to the contract. In September, Computer LLC experienced a shortage of funds for the purchase of the next consignments of equipment, so it turned to the Factor bank and signed an agreement with it for the provision of factoring services, according to which the right to claim against the Customer LLC cedes to it.

Terms of the agreement with Factor LLC: financing of 75% of the debt amount, agent's commission of 8%. LLC "Computer" provides the agent with an invoice for shipment and other documents confirming the accounts receivable of LLC "Customer". On September 10, Faktor Bank finances its client Computer LLC in the amount of 75% agreed upon under the contract: it transfers 900,000 rubles to its account.

At the end of the deferred payment, the bank submits a payment request to LLC "Customer", the company transfers the entire amount of the debt to the bank: 1.2 million rubles. The bank withholds its commission at the rate of 8%: 96,000 rubles. The remainder is transferred to Computer LLC: 204,000 rubles. Thus, LLC "Computer" receives as a result 1,104,000 rubles, and the bank makes a profit in the amount of a commission of 96,000 rubles.

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Factoring is financing against the assignment of a monetary claim or the resale of receivables to a bank. Factoring arises only from contracts that provide for post-payment - that is, with a deferred payment. It turns out that the products have already been shipped, the revenue is shown in accounting (perhaps taxes have already been paid from it), but the money has not yet been received from the buyer. This situation causes a gap in liquidity, reduces the financial stability of the organization, disrupts the production cycle of the organization, and this does not take into account the case of a delay in payment. Factoring avoids the problems associated with such payments. The factor (represented by a bank or a specialized factoring company) buys the buyer's receivables from the supplier. Factoring can be of different types depending on the role and disclosure of information by the parties.

The advantage of this scheme is obvious - the seller receives money immediately, which he can dispose of at his own discretion. The bank (factoring company) has its own margin from this operation - a certain percentage of the amount of redeemed obligations plus commissions. And then the buyer makes the final settlement with the bank (factoring company).

So, the factoring scheme is as follows:

Participants - seller, buyer, factor

The seller sells the buyer's debt to a factor. In this case, the seller does not experience failures associated with a lack of funds. The factor receives a commission for providing services to the seller. The buyer gets the option to defer payment. This is the simplest factoring scheme:

Please note that not every receivable can be factorized. DZ is subjected to a thorough check at the preliminary stage, where the reality of its collection from the debtor, and, consequently, his financial condition, is assessed. Also, the package of documents on factoring will be checked by the bank's specialists and it must meet stringent requirements - both legislation and the requirements of the bank.

Factoring with financing and factoring without financing

Factoring with financing implies the payment by the bank of the supplier's receivables in the amount of about 85% minus the discount (margin to the bank), including early payment. The remaining 15% of the transaction amount is reserved in case of receiving claims for quality, quantity, product parameters. Bank margin can be expressed as a percentage of the transaction, commission.

Factoring without financing involves the transfer of the right to receive proceeds to the factor. That is, the bank does not pay the invoices instead of the buyer (as in the first case), but on the basis of the invoices received from the seller for payment, it requests payment from the buyer on the terms and conditions specified in the product supply agreements. The factor company plays an intermediary role.

Open and closed factoring

Open factoring provides for notification of all parties about participation in the payment process of the factoring company (bank). The buyer is notified of the bank's participation in the settlement process.

With closed factoring, the buyer is not notified of the participation in the calculations of a third party - a factor. The buyer makes a settlement in accordance with the agreement with the seller of the product, and the latter independently calculates with the factor to pay off the payment.

Recourse factoring and non-recourse factoring

Recourse factoring provides that in the event of non-payment by the buyer, the amount of funds will be debited from the buyer. The rate for such factoring will be more profitable, since the risk of the factoring company is significantly reduced. The factoring company (bank) will pay most of the buyer's receivables as soon as possible (for example, 95% of the debt upon entering into a factoring agreement, the rest upon the performance of its obligations by the debtor). Transactions of this nature - recourse factoring account for about 88% of the share in the volume of factoring transactions.

Factoring without recourse provides for the full taking of the risk by the factoring company if the buyer does not pay the amount of the receivable, which greatly affects the rate for the use of funds and makes this type of factoring the least common in practice.

Internal factoring is carried out on condition that all the parties involved are in the same country.

With external factoring, the parties are located in different countries, and the factoring agreement is most often concluded for a part of the debt that is available in a particular country within one or several buyers. It is also called the conclusion of a global cession agreement.

Possible reasons for denial of factoring services by the bank:

  • The organization has many debtors, the share of each of which is insignificant
  • The organization conducts business according to the "buy-sell" scheme - the so-called "crossover"
  • A product under a factoring agreement raises doubts about its quick implementation and liquidity
  • The organization acts as a subcontractor
  • The organization carries out retail trade in small quantities of goods
  • The organization uses, among other things, non-monetary forms of calculation

So, let's summarize the above. Factoring can be classified as an active banking operation, which implies the assignment of rights to monetary claims. Each of the parties involved can derive a certain benefit from this operation - timeliness of settlements for the supplier, delay for the buyer, commission for the factor. A factor can be both a bank (most often in practice) and a specialized factoring company. Not every debt qualifies for factoring, and not everyone will be able to receive financing against the assignment of a monetary claim.

When looking for funds for the development of production, you can consider all financial services. Factoring allows you to receive money before the buyer pays for the delivery. Such an operation allows you to quickly return funds to circulation and reduce many risks for the enterprise.

There are many options for where to get funds for business development. The most obvious one is to get a loan. However, the banking market is much broader, and banks can finance more than just lending. There is, for example, factoring that will be of interest to manufacturers and wholesale suppliers. This service is provided not only by banks, but also by other commercial organizations.

Definition of factoring

Factoring is financing the supply of goods. The supplier company ships the products and receives payment for the batch not from the buyer, but from the bank. The buyer, in turn, pays the debt to the credit institution.

There are 3 parties involved:

  • supplier (lender);
  • buyer (debtor);
  • bank (factor).

How do the parties interact?

The supplier concludes an agreement with the bank, he notifies the buyer of its existence. The order of shipment and payment is fixed in an additional agreement signed by the buyer and the seller. After that, the seller ships the goods to the buyer's warehouse. The supplier sends the purchase documents to the bank, the credit organization transfers the money to the supplier's account (in accordance with the agreements, payments can be split). The buyer pays with the bank, the bank transfers the balance to the supplier minus the commission. Thus, the supplier does not expect payment from the buyer, but receives it much earlier, for which he pays the bank a commission (in the region of 10% of the shipment amount). Several factors can be involved in one trade.

Advantages and disadvantages

Benefits for the buyer:

  • purchase with deferred payment;
  • payment directly to the bank (usually a credit institution provides several payment options);
  • the possibility of partial payment.

Benefits for the supplier:

  • accelerated receipt of money;
  • increase in the turnover rate;
  • the bank covers the main risks (delay in payment, instability of the exchange rate, lack of liquidity, etc.);
  • no collateral is needed (unlike a loan).

Benefits for the bank:

  • receiving remuneration for the operation;
  • the expansion of the customer base.

However, there are also disadvantages to this procedure. First, you will have to pay for the provision of the service, and the amount depends on the size of the transaction. Secondly, the more participants there are, the longer it takes to resolve controversial situations.

Other features of factoring:

  • the grace period for payment, as a rule, does not exceed 4 months;
  • no need to switch to cash settlement services (settlement and cash services) at the bank;
  • the size of the transaction is not limited, depends on the volume of sales;
  • valid indefinitely or until the date of termination of the contract between the supplier and the bank.

Types of factoring

There are several types of factoring. The first (main) difference between them is the riskiness, the second is the moment when monetary claims arise.

The service assumes that the bank acquires all the customer's debt. However, if it is impossible to collect funds from the debtor, losses suffer:

  • supplier (recourse factoring);
  • bank (factoring without recourse).

A monetary claim may arise:

  • at the time of signing the contract (real);
  • in the future (consensual).

There are also other classifications, depending on other criteria, for example, whether all parties are in the same country or located outside of one state.

Historical reference

Historians argue that factoring is the oldest form of lending, dating back more than one millennium. Of course, in ancient civilizations, slightly different schemes were used, but there were features of factoring operations. However, the service did not receive strong development at that time.

England

A natural impetus to development happened only in the 14th century in England. This is how intermediaries appeared, organizing interaction between manufacturers and end customers. The task of the factors included the search and analysis of buyers, ensuring the storage of products, collection of trade proceeds. Resellers have allowed remote enterprises to focus on manufacturing rather than finding outlets. They have greatly helped remote companies sell manufactured products. On the factors of that time, the function of searching for sales markets and assessing the reliability of buyers completely lay.

Rest of Europe and USA

The surge in popularity of factoring in the United States occurred in the 19th century. At this time, many companies were formed here, providing such a service. Agents provided goods turnover between remote settlements and different states. For a fee, they guaranteed payment for all goods.

In Europe, factoring developed in the second half of the 20th century with the growing popularity of the installment payment service. At this time, Europeans were experiencing a lack of funds, so the tendency to first sell goods and then pay suppliers became very popular.

By the end of the 20th century, factoring reached a new level - international. Now parties from different countries could take part in one transaction. This required regulating the procedure, since in many states there were no legal prerequisites for carrying out factoring operations. So, in 1988, the Unidroit Convection was adopted in Ottawa.

Legal regulation

Factoring transactions are governed by the laws of the country where they are conducted. In Russia, this is the Civil Code of the Russian Federation. And although it lacks the term itself and the definition of factoring, there is a mention of transactions with exactly the same mechanism.

Factoring has become widespread at the international level, and the Unidroit Convention (Ottawa, 1988) was adopted to regulate them. Russia joined it in 2015. It explains in detail the general provisions and scope of the service, lists the rights and obligations of all parties to the transaction, specifies the rules for assigning claims.

Russia today

What factoring is, they learned in Russia in 1996 with the release of the first part of the Civil Code. This scheme of working with suppliers and buyers was experimentally introduced in the USSR. However, due to the lack of such experience, the command economy and the closed borders, the scheme was distorted: banks were working with overdue debts.

Factoring has been developing in Russia since 2002. Its volume in 2002 was 168 million euros, and in 2003 it was already 485 million euros. However, in recent years, growth has decreased, in 2014 it fell from 30 to 9% (although the forecast was 5%). The fall was caused by a difficult economic situation, which resulted in the growth of bankruptcies of enterprises.

Growth rates in 2015

Major problem factors in 2015

Small and medium business segment

Summary

In simple words, factoring is a service with the participation of a bank or other commercial firm, in which the supplier receives money for the goods supplied from a credit institution. Later, the buyer transfers the required amount to the bank.

The deal is beneficial to all three parties, but the supplier and the bank receive the most benefits. For the buyer, there is no significant difference who to pay money to.

Despite the temporary downturn, the factoring market will continue to grow, in Russia this service is provided by such companies and banks as Alfa-Bank, Promsvyazbank, VTB-factoring and others.