Details about factoring and its types. What is factoring: a simple and detailed explanation, a diagram

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 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, which 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, and he notifies the buyer of its existence. The order of shipment and payment is fixed in an additional agreement, which is 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 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:

• deferred payment purchase;
• 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;
• there is no need to switch to cash settlement services (settlement and cash services) at the bank;
• the size of the transaction is not limited, it 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 of the emergence of monetary requirements.

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, provision of storage of products, collection of trade proceeds. Resellers have allowed remote businesses to focus on manufacturing rather than finding points of sale. They have greatly helped remote companies to sell manufactured products. The factors of that time were completely responsible for the function of finding sales markets and assessing the reliability of buyers.

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. During this time, Europeans were experiencing a lack of funds, so the tendency to first sell goods and then pay suppliers later 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 conducting 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 internationally, and the Unidroit Convention (Ottawa, 1988) was adopted to regulate factoring. 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, together 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 amounted to 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 expected to be 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 delivered goods 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.

There are many definitions of factoring. The simplest, legislatively enshrined in the Civil Code of the Russian Federation, is "financing against the assignment of a monetary claim."

At the moment, the factoring market in Russia is growing, more and more factoring companies appear, many banks open factoring branches and begin to provide factoring services, but the situation is complicated by the fact that the Civil Code of the Russian Federation still does not have a clear legislative regulation of factoring operations.

Nevertheless, at the end of 2012, the factoring turnover in Russia amounted to 1.4 trillion rubles.
Let's try to understand the concept of financial factoring in more detail and evaluate its benefits using specific examples.

2. Types of factoring

Until now, there is such a definition in open sources as "factoring of accounts receivable", because initially there was only one type of factoring - factoring with the right of recourse. However, adjusting to market requirements, factoring has received more and more varieties, and now many factoring companies can offer their customers a whole line of products.

Let's consider them in more detail.

• 1) Factoring with regression. This is a classic factoring scheme used when selling goods on a deferred payment basis. The factor buys, as a rule, 90% of the receivables of the Client Company, however, after the expiration of the grace period, the right of recourse comes, i.e. The Factor has the right to request the previously issued financing from the Client Company. This is one of the most common factoring services. It is convenient for the factor because it does not bear any risks, and for the Client Company - because it receives financing immediately after the shipment of the goods, while avoiding cash shortages;
• 2) Factoring without recourse. This type of factoring developed the most actively in 2012. This type of factoring is also relevant for companies working with deferred payment. Basically, it is the purchase of receivables. The client company can ship products on a deferred payment basis, while receiving financing from the Factor immediately after the shipment of the goods and in full, eliminating the risk of non-payment and the occurrence of cash gaps. It should be noted that this is the most expensive type of factoring for the Client Company, because The factor carries quite serious markets. Not all factoring companies offer factoring in their product line without recourse, and if they do, they impose serious restrictions on industries, turnover of the company, time of existence on the market, and also conduct a serious check of both the Client Company itself and its debtors;
• 3) Guarantee for Buyers. This type of factoring is similar to credit risk insurance. The factor issues a surety to the Client Company in case of non-payment of any of the debtors. At the same time, financing is paid only in the event of overdue receivables. For the Client Company, this is convenient because it is possible to minimize the risks of non-payment even when working with new clients, for example, using this product, open offices and work with clients from other regions. For Factor, this service is good in that it has a high added value, and at the same time, cases when you really have to pay financing are extremely rare;
• 4) Procurement Financing, Procurement or Reverse Factoring (all definitions are absolutely equivalent).
  In this type of factoring, the client of the Factor is not the company that produces or sells goods, but its debtor. This scheme is often used if the distributor company refuses to work on a deferred payment basis, and its debtors do not have enough free funds to purchase the goods in the required volume. It works in the following way: The distributor company ships the goods to the Debtor, while the financing of this purchase is made by the Factor, and the debtor company receives the necessary payment deferral, during which it can sell the goods to its customers, and only after that settle with the Factor;
• 5) International factoring. It can be imported and exported. It is also divided into recourse and non-recourse factoring. At the same time, factoring schemes with recourse and without recourse are implemented similarly to internal factoring, the only difference is that there are already 2 factors involved in the transaction, and the transaction itself is no longer in rubles, but in any foreign currency. In order to participate in international factoring operations, Factor must be a member of the international factoring associations FCA and IFG. Accordingly, not all Russian Factors can provide such a service;
• 6) Open or closed factoring. This concept can be applied to any of the above types of factoring (with the exception of international). In case of open factoring, the debtor signs a special agreement on factoring work with the Client Company of the Factor and pays the financing to the settlement account of the Factor. With closed factoring, the debtor may not be aware of the existence of a factoring service agreement.
  These are the main types of factoring implemented in Russia. Some factoring companies are trying to develop local products. However, they are so rare that it makes no sense to pay special attention to them.

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3. Example of factoring

Let's consider the work of factoring with a specific example.
Suppose company A. is engaged in the production of building materials. The market is highly competitive, which means that deferred payment will be an obvious competitive advantage.

In addition, company A. wants to sell its goods through federal building hypermarket chains, which, in principle, work exclusively on deferred payment. However, the granting of a deferral entails cash shortfalls and company A. simply does not have enough working capital.

This is where factoring comes in to help company A. Moreover, the tasks of company A. can be solved by classical factoring with regression.

Company A. enters into a factoring service agreement with the factoring company F. with 100% financing and a 60-day deferred payment.
Company A. sells its goods with this delay, while receiving 100% financing from the Factor immediately after the shipment of the goods, and settles with the Factor when the debtors pay.

4. Factoring and forfaiting

Considering that the topic of factoring still causes some difficulties (sometimes the concepts of factoring and leasing or even lending are confused), let us compare it with such a financial product as forfeiting.

Both financial instruments are applicable only for the international transactions market. Both factoring and forfeiting arise when working with deferred payment.
The essence of forfeiting is that the Company, which works with its debtors on a deferred payment basis, may demand from them a bill of exchange or IOU. At the same time, a bill of exchange is a certain guarantee of payment from the debtors' side.

As a rule, forfaiting is applied when the payment is deferred for up to 10 years, while the maximum deferral for factoring is 180 days.
The amounts of forfeiting transactions are much higher than those for factoring, so a third party guarantee is required.

Another difference is that the Factor can exercise the right of recourse (when using a recourse factoring product), and the forfaiter takes all the risks of non-payment on himself in any case.

One way or another, both schemes take place, depending on the needs of the company.

The advantages of factoring over other financial instruments can be only if it fully meets the tasks facing the company. The most important advantage over such services as, for example, credit, insurance or leasing is that factoring is not just financing a company, it is a whole range of services for managing accounts receivable (the work of collectors, underwriters and loan officers).

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5. Leaders of the factoring market and trends in the development of factoring in Russia

The leaders of the factoring market in Russia are:

• VTB factoring - 24% of the market;
• Promsvyazbank - 18% of the market;
• Alfa Bank - 11% of the market;
• Bank Petrocommerce - 8% of the market;
• National Factoring Company - 5% of the market.

These Factors provide almost the entire product line of factoring, have a large staff of specialists and a significant client portfolio. At the same time, there are many small companies on the market that define themselves as factoring, but in fact issue ordinary loans. Perhaps the existence of such companies makes the concept of factoring and factoring bank in Russia rather vague.

In 2012, the factoring market grew by 63%. In 2013, experts predict an increase in the volume of factoring services by another 40-50%, but the growth rate will slow down somewhat. At the same time, the pace of the market will largely be determined by the actions of newcomer companies. Already, competition among banks providing factoring services and factoring companies is estimated at 3.9 points on a five-point scale, and by 2013 this figure will increase even more.

Despite the fact that at the end of the 1st quarter of 2013 there is some stagnation in the market, it is expected that by the end of 2013 the volume of factoring operations will reach 2 trillion rubles.

Nevertheless, the factoring market as a whole in Russia is still being formed, its potential is very high.

VIDEO ON THE TOPIC: “What is factoring”?

The ultimate goal of an individual entrepreneur or company is to receive (in the greatest volume and in the shortest possible time). The speed of closing a deal also plays a significant role in extracting profit: sometimes, due to a few missed days, you can lose most of the expected profit or miss the opportunity to establish a strong connection with a new business partner. The seller is usually ready to sell the product by default; another thing is the buyer, who, no matter how interested in the product, does not always have the amount necessary for the immediate conclusion of the contract.

It is clear that it is unprofitable to take out a loan for the sake of concluding one transaction, but you cannot count on it. It is wiser to take advantage of factoring - the intermediation of a third party who is ready to pay for the goods for the buyer under certain conditions. About the use of factoring, its types and the rules for choosing a factoring company or bank - see below.

Factoring - what is it?

In simple words, factoring is a way to conclude a transaction and formalize a sale and purchase agreement, service or provision of services using borrowed funds provided by a third party: a bank, enterprise or organization.

Important: in accordance with article 824 of the Civil Code of Russia, factoring is one of the varieties of contracts for the assignment of a claim. Its main difference from the cession is the irreplaceability of the “actors”: the lender at any time remains the lender, the borrower is the borrower, and the intermediary is an intermediary.

Like any financial transaction, factoring requires a contract. It is possible to prescribe the involvement of a third party in a contract of sale, provision of services or services, but a simple mention will not be enough: in the event of disagreements between the parties (in any combination), a separate document, drawn up in compliance with all the required formalities, will have great legal force. It is he who will need to be used in attempts to resolve the situation out of court or when filing a statement of claim in court.

Advice: if the seller or the buyer does not want to enter into a contract with a third party, they can try to raise money by exploring or other options for raising funds that do not burden counterparties with additional agreements.

Basic terms

In accordance with the terminology adopted in domestic law, when concluding a factoring agreement, the following definitions are used, enshrined in the mentioned article of the Civil Code:

1. Lender (seller, supplier, beneficiary, contractor). A person who sells goods and materials or offers services on a reimbursable basis. The creditor can be an individual entrepreneur, limited liability company, joint stock or public joint stock company, enterprise and other commercial organizations, regardless of the declared form. On the terms of the factoring agreement, the creditor receives from the "intermediary" working capital (payment for the supply of goods or the provision of services to the consumer), and in exchange transfers him the right to claim the debt in full from the buyer.
2. Borrower (buyer, consumer). A person who receives goods and materials or services from a seller using borrowed funds. By concluding a contract, the borrower undertakes to return the money used to conclude the transaction to the “intermediary” in full and on time. Unlike a standard lending agreement, in factoring, the working capital is not transferred to the hands of the borrower, but is immediately transferred to the settlement account of the seller.
3. Factor ("intermediary", financial agent). A person who, on the basis of a factoring agreement, transfers the required part of the funds available in his account to the creditor in exchange for compensation from the seller and the right to recover the debt from the acquirer. A factor can be, according to article 825 of the Civil Code, any legal entity acting on a commercial basis (not necessarily a financial institution). In the Russian Federation, the role of a factor is traditionally assumed by banks; slightly less often - MFOs and special factoring companies. On the basis of the factoring agreement, the agent has the right, in case of non-payment, to demand money from both parties to the transaction: from the seller (supplier) - the compensation due to him, and from the buyer - the amount used to conclude the contract.
4. Factoring. The process of concluding a tripartite agreement between the seller, the "intermediary" and the buyer, including finding a factor, studying the consumer's (borrower's) solvency, transferring invoices (obligations) to an agent and transferring borrowed funds to the lender's account. There is no single form of factoring agreement: the parties to the transaction can freely adapt it to specific conditions. The mandatory clauses of the contract include the conditions for the provision of money, the rights, obligations and responsibilities of the parties.
5. Factoring service. Providing an “intermediary” for concluding a sale and purchase transaction, servicing or rendering services by transferring funds instead of the buyer to the seller's account. The standard volume of "infusions" by a third party is from 70% to 90% of the transaction amount; most agents do not undertake to reimburse the cost of goods or services in full.

The procedure for the provision of services

In the most general case, the factoring scheme looks like this:

1. The seller and the buyer agree on the deferral of payment for the consignment of goods or services provided for a specified period. Theoretically, this can be any time, but in domestic practice the delay rarely exceeds three months.
2. The parties to the transaction are looking for a factor (a bank or a company specializing in the provision of such services) and enter into a tripartite agreement on the provision of working capital. In this case, as already mentioned, from the moment of the transaction until the exhaustion of the debt, the role of the creditor is assigned to the seller (supplier); the factor remains a financial agent entitled to claim funds from the borrower in full, including by filing a statement of claim in court.
3. The money is credited to the seller's account. That, in turn, delivers a product or provides a service to the consumer, after which he transfers the invoices to the “intermediary”. Simultaneously with these events, the buyer, after checking the quality of the products sold to him or the services rendered, pays the lender "his" percentage of the cost - usually from 10% to 30%, depending on the terms of the contract.
4. If, after delivery, it was discovered that part or all of the inventory or, for example, the work performed is of inadequate quality, the consumer acquires the right not only to demand the return of the funds deposited by him in the pre-trial settlement procedure or in the courtroom, but also to insist on writing off the arisen to a financial agent of debt or on the provision by a supplier of a similar product or service of adequate quality. The grounds for the claim in this case will be, in addition to the relevant protocols, both contracts: purchase and sale and factoring.
5. If the consumer has no complaints about the quality of the delivered goods or the work performed, he signs the invoices and pays the required amount to the “intermediary” before the expiration of the term specified in the factoring agreement. This is where the relationship within the framework of the contract ends.

Important: in preparation for signing the contract, the factor has the right (or rather should) make sure of the reliability of the other two parties: the seller, who takes on the role of both the creditor and the financial guarantor, and the buyer. The easiest way to do this is to request documents on the rules for delivery and payment, as well as on previous cases of delays and non-payments on the part of the consumer.

However, even if the parties agreed and misled the "intermediary", he will not lose the spent funds: depending on the circumstances, he can either, having proven the existence of fraudulent actions, demand compensation from both parties in court, or insist on the return of the money he invested in the transaction based on the terms of the contract. Such variability is possible, since the third party is not interested in who exactly will compensate him for the costs: the consumer or the supplier.

Components of the contract

The factoring agreement must contain:

1. Full official and (optionally) abbreviated names of all parties to the transaction: lender, borrower and financial agent (including details, contacts and postal addresses). If one of the parties is an individual (individual entrepreneur), instead of the name, his surname, first name and patronymic, as well as the number of the certificate of state registration and the date of issue of the document are indicated.
2. Subject of the contract... It is important to understand that the subject in this case is not the purchase and sale, the provision of services or the performance of work, but the factoring itself, that is, the provision of funds by a third party for the implementation of the transaction. You do not need to provide anything in excess in the document: the details can be studied by referring to the purchase and sale agreement, which acts in conjunction with the agreement for the provision of factoring services.
3. The rights of each of the parties to the transaction... In the general case, excluding the insignificant aspects of the transaction, the seller has the right to receive funds from the buyer and the financial agent, the right to demand from each of them the fulfillment of obligations for payment and acceptance of material and commodity assets or services and to protect their interests in a pre-trial and judicial order within the framework of current legislation. The buyer's rights are to require the seller to comply with the terms and conditions of delivery in accordance with the sale and purchase agreement and with the attraction of borrowed funds, prescribed in the factoring service agreement. The financial agent, after the signing of the relevant contract, may insist on the seller transferring invoices or other documents confirming the fact of the emergence of commercial relations between the seller and the buyer, on the payment of compensation to him by the creditor and full repayment of the debt by the buyer within the specified time frame.
4. Responsibilities of each party... The obligations of the seller, buyer and factor logically follow from the previously listed rights of other participants in the transaction. A factoring agreement is concluded, unlike most contracts, between at least three actors, which means that the legal relations arising on its basis include more vectors - and all of them should be listed in the relevant sections.
5. Liability of the Lender, Borrower and Financial Agent for failure to fulfill their duties. It is recommended to include in this section not only information on penalties for delay, underdelivery or payment of funds not in full, but also the procedure for pre-trial resolution of disputes arising in the course of contractual relations. A separate clause in the contract can include a clause obliging the party who considers its rights infringed to try to resolve the conflict through negotiations before filing a statement of claim in court: each of the counterparties can use the time spent on long proceedings with greater benefit for themselves.
6. Step-by-step description of the process of attracting a financial agent... There is no need to over complicate the operation: the simpler and more transparent it is, the easier it will be for each of the parties to properly fulfill its obligations.
7. The amount of funds lent, interest in favor of the financial agent and the commission paid by the seller. It also makes sense to indicate the procedure for insuring the investments of a financial agent in case of non-receipt of the money issued for the time being.
8. Contract duration... It is recommended to indicate the limitation period in the section. If the latter is not in the contract, the standard one, which, according to the Civil Code of Russia, will be three years.
9. Additional terms not included in the body of the factoring agreement... These include the ways of transferring and refunding funds, preferred banks, methods of communication used, and so on - everything that counterparties consider important.

The contract for the provision of factoring services must be certified by the signatures and seals or stamps of all parties to the transaction: if the seller, buyer or "intermediary" could not declare their agreement with the terms of the contract, but the very fact of the transaction took place, it will be necessary to prove the legal force of the document on the basis of invoices, payment and other relevant papers. It is more difficult and longer than taking the time to sign a document.

Important: You do not need to print a contract to certify it. Parties can use qualified digital signatures, which can slightly reduce the burden on the office of companies or individual entrepreneurs.

Varieties of factoring

There are several types of systematization. The first of them (in the order of interaction between the parties) includes two types of factoring services:

1. Open. The most common option, which implies the conclusion of an agreement between commercial structures: both the seller and the buyer, and the financial agent - individual entrepreneurs or legal entities responsible for failure to fulfill obligations under the contract and Russian law. The cooperation scheme is fully consistent with the above: the parties conclude a tripartite agreement, the seller supplies the goods or provides a service, receiving part of the money from the buyer and the main one from the factor, after which the consumer repays the debt to the financial agent within the prescribed time frame.
2. Closed. In this case, the seller attracts money from the "middleman" without the knowledge of the buyer. The latter, without participating in the signing of the contract for the provision of factoring services, in fact receives a small deferral of payment, and upon its end, returns the funds in full to the creditor, without interacting with the agent.

The second type (according to the distribution of commercial and insurance risks) also implies two options:

1. No recourse. The financial agent assumes all risks and costs, including those associated with the pre-trial settlement of disputes with the buyer, filing a statement of claim in court and further proceedings.
2. With regression. It is more beneficial for the "intermediary", because, in accordance with the terms of the contract, he gets the right to demand the repayment of the debt from the seller if the buyer neglects his obligations or cannot fulfill them for objective reasons.

The third type - according to the start time of the factoring agreement:

1. Preliminary (consensual). The buyer assumes debt obligations, and the seller cedes to the factor the right to recover the debt even before the main contract (sale and purchase, provision of services, etc.) comes into force. It is often practiced, however, it is associated with increased risks for the consumer and, therefore, the “intermediary”: the first, in the event of the supplier's dishonesty, will have to prove his case and put forward new requirements, and the financial agent will have to wait all this time for the debt to be paid off.
2. In fact. The contract for the provision of factoring services, at whatever point in time it is drawn up, comes into force after the seller has fulfilled his obligations towards the buyer, and sometimes even after the latter has paid his share of the payment. A safer option for the financial agent, since at the time of the debt to him, the consumer already has the opportunity to verify the quality of the goods or services.

The fourth type - by country of presence:

1. Interior. All participants in the transaction are residents of one country; accordingly, contractual relations between the parties develop in a single legal field (and there is no need for correlation).
2. External. The provision of factoring services is carried out internationally. It does not matter whether all the parties to the contractual relationship or only one of them are in different jurisdictions; only the compliance of the terms of the transaction with the norms of international and local legislation matters.

The fifth type - according to the number of financial agents:

1. One factor. The most common option: both the seller and the buyer enter into an agreement with the same "intermediary" and fulfill obligations to him in exchange for a short-term provision of borrowed funds.
2. Two or more factors. A complex scheme in which the supplier attracts one agent (or several), and the consumer - another. The more parties to the transaction, the more complicated the procedure for drawing up an agreement for the provision of factoring services, so it makes sense to resort to this option if one "intermediary" cannot provide the required amount or the seller and the buyer do not trust each other.

There are other ways to classify factoring - for example, by the use of electronic or paper documents or by the specialization of the intermediary firm. However, these criteria are only particulars that do not affect the scheme for providing funds for the conclusion of a transaction, and therefore it makes no sense to engage in further transfers.

Pros and cons of factoring

Benefits of attracting a factor (or multiple factors):

1. The ability to conduct transactions without posting collateral. All that is required from the consumer to receive the goods is to deposit 10-30% of its value to the seller's account. In the future, he returns to the financial agent the amount previously provided by him: the remaining 70-90% plus, depending on the terms of the contract, interest for services.
2. Simple conditions for receiving the service. Since the return of funds to the financial agent is guaranteed by the concluded tripartite agreement, and with his greater foresight, the obligations on the part of the seller, he does not have to worry about the safety of the money provided - therefore, the credit conditions change for the better.
3. The opportunity for the seller to use the funds received from the agent in full. In this case, it is not necessary to keep the balance on the account as it should when receiving a loan.
4. Guarantees for the seller. By attracting a factoring company or a bank for a small fee, the supplier usually shifts to him not only the worries associated with receiving money from the borrower, but also gets rid of the need to pay income tax from his own funds; the latter often happens when the seller has already delivered inventory items to the buyer, and he does not have time to transfer the required amount to the account of the creditor post before the tax payment deadline.
5. Maintaining a neutral internal balance. Factoring services do not relate to lending, which means they do not in any way affect the CI of an individual entrepreneur or company.
6. Attraction of new clients due to the formation of a more advantageous offer, which implies the provision of installments.

Disadvantages of using factoring services:

The need to involve financial agents in transactions was discussed earlier; here it makes sense to re-enumerate the situations in which the use of factor money is especially useful:

1. Urgent need to attract borrowed working capital. This applies to the greatest extent to the sphere of small business, which is experiencing a colossal tax burden and is not spoiled by lucrative loan offers.
2. The primary task is to attract new customers and retain regular ones. It is more convenient for many consumers to receive goods in installments, initially contributing a small part of their cost, especially in the context of a permanent financial crisis. Factoring allows the seller to approach the business from a new angle, without risking their money and without wasting time talking with creditors.
3. The buyer is unreliable or the supplier has not previously dealt with him. It is difficult to say whether the factor will agree to provide money under such circumstances, but, having found a suitable financial agent, the seller, without burdening himself with the conclusion of an assignment agreement, shifts it to him to receive money from the consumer.
4. The discrepancy in the scale of activities of counterparties. If a small business supplies products to an industrial giant, or, on the contrary, buys any products from him, most likely their payment schedules do not coincide. Factoring allows you to get rid of this inconvenience by leveling time gaps: the creditor receives payment for the goods immediately and in full, and the consumer can pay for the delivery without urgent withdrawal of working capital.

Important: in accordance with domestic practice, factoring services are not used for mutual settlements between branches of one enterprise, as well as for the repayment of existing credit obligations.

How is factoring different from credit?

Features of factoring services in comparison with lending:

1. Shorter maturities of debt, usually up to 12 months from the date of its origination.
2. The borrower does not need to provide collateral.
3. The amount of funds provided is not fixed: it is determined by the supplier himself.
4. A contract with a factor can be concluded on an indefinite basis: the seller will receive the required amount every time the invoices are submitted - without reissuing the documents.
5. The debt is not repaid by the recipient of the money, but by a third party - the consumer.

How to choose a factoring company?

Factor selection criteria:

• focus: some financial agents provide funds for transactions in only one area; others, usually larger, are universal;
• reputation: do not deal with an openly unreliable or badly reviewed "intermediary", even if he offers more favorable conditions for the use of working capital;
• price: not only the buyer, but also the seller has to pay for the convenience, which means that it makes sense to find a more economical option.

Important: An entrepreneur who is afraid to trust factoring companies should pay attention to banks that provide similar services. These include Sberbank, VTB 24, OTP Bank and other large Russian financial institutions.

Summing up

Factoring is the receipt of funds for a transaction from an agent with the subsequent repayment of the debt by the buyer. In this case, the seller himself pays remuneration for the use of his services in favor of the factor. The agreement can be bilateral or trilateral, concluded for a more or less long term, or even be unlimited.

The advantage of factoring is the simplicity of formalizing commercial relations and payment conditions that are comfortable for the client. Disadvantages - relatively high interest rate and the need to provide information about the buyer to a third party. The use of factoring services does not affect the credit history of the supplier and the consumer, and does not imply the need for collateral.

Hello dear readers of the blog site. Factoring is a new term from the world of economics. It means sale of debt an organization specializing in this for a percentage of the amount (a bit like collection services, but here everything is different).

In order to understand the essence, let us decompose this concept on the shelves and explain everything in simple words with practical examples.

Important: Modern factoring means solving financial issues only between the supplier of the goods and the buyer.

The debt of the buyer of goods (store, for example) goes to a third party (factor - a bank, for example), and the seller (manufacturer of goods) immediately receives almost the entire amount of the debt from the bank. The bank then receives the debt (in full) from the buyer of the goods and its interest from the seller.

Can not understand anything? Why do you need an intermediary out of the blue? Let's take a closer look at examples.

The essence and history of factoring

Mostly factoring is used now to eliminate cash gaps when a supplier (for example, to large retail chains) receives money for the product only after a month or even two. But he cannot sit without money all this time - so shortly and go broke.

Therefore, the supplier sells the "debt of the trading network to him" to such a player in the market (bank or special organization), receives most of the debt from him into his account and successfully continues the business.

The factor (the legal entity who bought the debt) receives money from the debtor in full (after a while) and earns a percentage of the amount on its services (in this case, it is paid by the supplier of goods to the retail network). It looks a lot like a loan., but no one will give you a loan for the goods in the amount of 90% of its value (maximum 50%).

In the CIS, a business related to factoring came in 1985 (in the form of selling debt on loans). The actively developing Promstroybank and Zhilsotsbank experienced an acute shortage of working capital. Then they applied the foreign practice of collection, unknown until then:

1. A third party, a representative of a collection company, is invited in the relationship "bank - credited person".
2. The collector immediately pays the bank 80-90 percent of the client's debt, after which the bank transfers the rights to collect the debt to this very collector.
3. The collector is engaged in debt collection. It works harder than a bank, but it never comes out.
4. Having received the money, the collector pays the owner the balance of the debt, excluding the previously agreed interest and commission.

In case of factoring the circuit is very similar, but debts are redeemed not for loans, but for the goods supplied. Although it is difficult to imagine this without preparation, so we will analyze a few practical examples.

Interesting: the first mentions of such transactions (assignment of debt) are found in the Mesopotamian manuscripts, which are more than 2000 years old.

Factoring examples

Before delving into the topic, I will immediately give a few specific examples in order to more accurately explain how factoring works.

All names are fictitious, any coincidence with reality is accidental.

Example 1

A small factory "Fish Canned Food" has signed a contract for the supply of products with a large grocery supermarket. After delivery, the representative of "Fish Canned Food" receives an invoice confirming the fact of the transaction. With this invoice, the supermarket will pay for the goods within sixty days.

A small factory cannot afford to wait such a long time, as it need working capital... Then he turns to the factor and "sells him the debt." "Sale" means that the factoring company immediately pays "Fish Canned Food" 90 percent of the supermarket's debt.

At the same time, the supermarket will no longer owe the plant, but the factoring company. After receiving the money, the intermediary pays the remaining ten percent, excluding his own commission.

As a result, everyone is happy: the company sold its products and received working capital, the supermarket paid off within a convenient period for itself, the factoring company did its job and received money for it.

Example 2

The Titan Steel Plant signed a contract with Good Stroitel LLC for the supply of fifty iron plates for 20,000 rubles each (1,000,000 rubles in total). Under the contract, "Good Builder" pays 20 percent of the amount in advance and another 80 percent upon receipt.

A "good builder" pays a deposit of 200,000 rubles, but does not pay the rest during the week. "Titan" urgently needs money to buy raw materials, so he turns to the "Grozny" factor. “Grozny” sets the following conditions: “I immediately pay 650,000 rubles and another 100,000 rubles after collection. 50,000 rubles is my commission. "

After legalization, Good Builder owes 800,000 rubles not to Titan, but to Grozny. It is "Grozny" that now bears the risks associated with the return of money. Here is an example already resembles a collection activity when the bank sells the debt of citizens on a loan to a third party and that takes all the risks with its return.

Types of factoring

Factoring is a high-risk business. Accordingly, there are several options for schemes for its implementation, to one degree or another protecting the interests of the factor itself (a legal entity redeeming debts):

1. Non-recourse factoring
   The first variety that appeared in the Soviet and post-Soviet space. In this case, if the factor, for some reason, could not collect the debt from the client, then he suffers all the losses himself. It is more profitable, but also more risky. Collectors used to operate according to this scheme, which is why they knocked out debts so hard.
2. Regression factoring
   Regression is a kind of insurance (a reverse claim for reimbursement of the amount paid if something went wrong). In this case, the borrower (seller of the goods) negotiates in advance with the factor the conditions under which the transaction can be canceled. If it is not possible to receive the debt from the buyer of the goods in full, then the client (the seller of the goods and debt) will reimburse the missing amount of the factoring organization.

Interesting: When making a recourse transaction, the factor pays up to one hundred percent of the debt. This is understandable, because in this case there are practically no risks.

In addition, a distinction is made between closed and open processes.

1. Closed factoring- this is the transfer of rights to a debt without notifying the debtor. Like non-recourse transactions, this activity is gradually becoming a relic of the past. Today, there are no more cases when yesterday a client officially owed the bank, and today strangers with bats are already knocking on him.
2. Open factoring- this is one in which the debtor is officially notified that now he will pay money to other people. A more civilized and modern way of doing business.

By the way, the last method is the safest for all parties. But the "why" and who gets what (in terms of benefits) I will describe in simple and accessible words in the next section.

Factoring from the point of view of the parties to the transaction

It is clear that a factoring agreement carries both pros and cons for each of the members of the transaction. But for a better understanding, consider the process, putting ourselves in the shoes of each of the three participants in the process.

For a buyer of a product (for example, a retail chain like Auchan)

The seller, like the buyer, receives not only benefits from working with the factor.

For the seller of goods (supplier, manufacturer)

Finally, the factor itself also carries a certain risk.

For factor

Interesting: the stress in the word factOr in this case is on O.

What is forfaiting in simple words

Earlier in the article, it was already mentioned that there are several types of financial interaction with debtors. One of them is factoring, but there is another very similar interaction process - forfeiting.

What are the differences? If factoring is the redemption of debt from the seller with the possibility of return, then forfaiting is the redemption of debt directly from the creditor with full financial risk... This means that the forfaiter who was unable to collect the debt will personally incur losses in one hundred percent of cases.

Distinctive features of forfaiting:

Let's sum up

So, here are some basic facts about factoring deals that are really worth remembering:

1. This process is the direct heir to the collection activity (which is many thousands of years old), as well as forfeiting.
2. Factoring is a transaction between three persons (buyer, seller and factor).
3. Forfaiting is a direct redemption of a debt from a creditor by third parties (in this case, no one asks or notifies the debtor).
4. Factoring business is a modern and legal type of activity that minimizes the risks and inconveniences of all parties.

To find out in more detail what it is, perhaps, only on the forums, since sociable specialists in this field are very rare.

Good luck to you! See you soon on the pages of the blog site

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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 own benefit: 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 discloses 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, having previously deducted 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 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 makes settlements with the debtor. In the future, the supplier must transfer the 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 of different countries, then - external or international. In international transactions, there may be two factors, then such factoring is mutual, if one factor is direct.
• There is factoring under the terms of payment with and without regression... Conducting 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, there are real(when debt already exists) and consensual factoring (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 forfeiting, which is also a specific type of lending for trade transactions. Forfeiting assumes that the agent / forfaitor buys commercial promissory notes from the lender of its borrower.

Among the main differences are:

• the main use of forfeiting is the 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, it 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 "Fintek", transformed into its present form since 2008). It is among the leaders in terms of the volume and number of deals. 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, reverse factoring).
• 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 delivery 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 should also be noted 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 of 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". September 10, Bank Factor 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 balance 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.