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| 1 |
What
is Factoring? |
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Factoring is a receivables management and financing service designed to improve the seller's cash flow and to cover risk. This is best suited for financing trade and unlike other financing services, it normally requires no collateral. |
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| 2 |
What
is recourse and non-recourse factoring? |
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In recourse factoring, in the event of the buyer failing to pay on maturity, the seller has to pay back the advance obtained from the factor. In
non-recourse factoring, the factor provides
finance with a credit guarantee for buyers
and will bear the bad debt risk in case of
financial inability of the buyer to pay. |
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| 3 |
What
is the use of Factoring? |
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SBIGFL
turns the seller's invoices into cash, which
means that the seller can have instant access
to its earnings.Sellers don't have to wait for the usual long period to get paid by their buyers.
The seller will,
therefore have a healthier cash flow, which
will accelerate the growth. |
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| 4 |
How
much does the factor advance? |
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At SBIGFL, we advance
upto 90% of the seller's invoice value. |
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| 5 |
Apart
from getting money early what are the other
benefits to the seller? |
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The benefits to the
seller are multifold as listed below: |
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The seller gets 100% protection
against bad debts. |
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The amount
of money the seller can get
from SBIGFL automatically adjusts
to the level of turnover.
Hence, SBIGFL is able to provide
a growing business with a
growing finance resource. |
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The sales ledger maintenance and the credit control function is carried out by SBIGFL, which saves time and money for the seller.SBIGFL
collects money due from the
customers. |
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| 6 |
Would a seller lose direct control of his sales if he uses Factoring? |
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Certainly
not! SBIGFL will not only keep the seller regularly
informed of the position of his individual
customer's account but will also consult him
closely on collection procedures. |
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| 7 |
Would
Factoring cause any unpleasantness between
the seller and its buyers? |
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SBIGFL
understands and appreciates the seller's concern
over this matter. However, in practice and
in the context of modern day business, the
buyers are unlikely to react adversely to
the use of factoring. Recognizing the importance of the customer to the seller, and to help foster a
closer client - customer relationship, every courtesy and consideration will be given by SBIGFL to seller's customers. Indeed, factoring
helps the seller to avoid the embarrassment
of having to directly seek payment from the
buyers.
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| 8 |
Would
using factoring give buyers the idea that
the seller is in financial difficulties? |
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On
the contrary, International customers now
accept factoring as a normal, progressive
business service. For growth-oriented companies,
factoring finance is the preferred choice.
In fact, factoring is today perceived as a
sign of company's rapid growth. It is an indication of a growing organisation with keen focus on its core activities of production and marketing that outsources non core activities like collection
and sales ledger management to experienced professionals. Factoring is definitely a significant global trend. During 2006, the total volume of business handled by factoring companies
around the world was over Euro 1100 billion. Factoring is rapidly becoming the obvious business tool for growing companies. |
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| 9 |
How
will the seller be kept informed of payments
made by its buyer? |
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SBIGFL will send the
seller a monthly statement of accounts. This
statement will show credits for debts purchased,
a debit for credit notes issued and the amount
of cash drawn, among other details. |
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| 10 |
Does the seller have
to pledge other assets besides the receivables? |
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No!
This is the great advantage of factoring.
This means that the seller can obtain advances
their receivables through factoring and also
get funds against other assets. |
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| 11 |
When does the seller
get paid under export factoring if their customer
does not pay? |
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SBIGFL
will pay the seller 90 days after the due
date of the invoice in case of the customer
financial inability to pay up. This way, the
seller can plan the cash flow more accurately. |
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| 12 |
In the event of non-payment
by the customer what will happen to the GR
form? |
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The
GR form will automatically get cleared as
the sellers credit protection is from SBIGFL'S
overseas correspondents. Typically, payments will be made in the relevant foreign currency to SBIGFL under the credit protection arrangement and this will be an inward remittance of forex. |
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| 13 |
Will the seller be
able to avail any pre-shipment / packing credit
facility? |
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SBIGFL
can consider providing pre-shipment facility
to the seller if the seller's financials satisfy
internal credit norms. All such lending will
be available in INR only. |
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| 14 |
Is factoring suitable
for every company? |
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No. Much as SBIGFL would like to factor every company, those having the following characteristics are normally unsuitable: |
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Where the credit offered to customer
is more than 180 days |
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Where there
are contra sale, consignment
sale or sale or return arrangements |
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Where most
of the sales are to associated
companies |
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Where sales are to retail consumers
or small retail outlets to the
public at large |
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Where sales are to countries not
covered by SBIGFL overseas correspondents |
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| 15 |
What types of industries
are suitable for factoring? |
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Manufacturing
and trading companies are the two main types
of industries that benefit most from factoring.
However, SBIGFL can tailor the facility to cover
export of the following services: |
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Advertising |
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Solicitors
& Legal firms |
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Architect
firms |
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Medical firms |
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Construction & Engineering
Contracts |
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Software |
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| 16 |
Factoring sounds
attractive, but what costs are involved? |
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There are 3 elements
of Factoring cost |
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service fee and |
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interest
charge |
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one time setup fee |
| Refer to a description
of each in the following question |
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| 17 |
What
is service fee based on? |
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Service
fee is levied based on the work involved in
administering the seller's sales ledger as
well as for credit protection of the gross
value of the invoices factored and is based
on the following criteria: |
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The gross sales volume |
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The number of customers |
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The number of invoices and credit
notes |
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The degree
of credit risk represented
by the customer or the transaction. |
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| 18 |
How is the interest
charge applied? |
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SBIGFL
charges the seller only for the amount used,
that is, if the seller obtains advance payments
against the factored invoices before they
are paid. The interest charge is calculated
on a day to day basis for the actual period
between such advances and the day of collection
of the invoices factored. |
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| 19 |
How is a factoring
advance repaid? |
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Automatically.
When each invoice is eventually settled, buyers
make payment to SBIGFL's factoring correspondents.
In turn SBIGFL will pay the seller the balance
after adjusting any advance and outstanding
charges. |
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| 20 |
Factoring seems a rather expensive way of getting capital. Doesn't it? |
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No.
The correct way to evaluate factoring is in
terms of the seller's company's growth and
the opportunity a seller loses by foregoing
business on account of unavailability of funds.
By enabling the seller to gain access to additional
working capital without restricting other
forms of borrowing, factoring provides a unique
credit service. And remember, when the seller
counts the additional savings he will enjoy
in terms of staff salaries, office overheads,
bad debts and all the incidentals that go
into keeping his sales ledger and chasing
for payments on his investments, the seller
will see just how valuable factoring really
is. |
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| 21 |
Is Factoring better
than credit insurance? |
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Whether
the seller should use credit insurance or
factoring will depend on his company's needs.
Below is a comparison of the features of credit
insurance and international factoring: |
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| Features |
Credit Insurance |
Factoring |
| Percentage of credit
cover |
70 to 90% |
90% to100% |
| The seller has to
bear first loss |
Yes |
No |
| Limit on aggregate
loss per year |
Yes |
No |
| Payment under guarantee
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180 days |
90 days to 120 days |
| Formal claim procedure |
Yes |
No |
| Immediate payment
of loss |
No. 1 to 3 - months to settle |
Yes |
| Debt collection |
No |
Yes |
| Financing |
No |
Yes |
| Credit Protection |
INR |
FCY |
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| 22 |
What is FCI? |
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FCI
stands for Factors Chain International. It
is a global network of leading factoring companies
whose common aim is to facilitate international
trade through Factoring and related financial
services. As an affiliated member of FCI,
SBIGFL achieves competitive advantage in international
trade finance services through : |
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A
global network of first class factoring companies |
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Modern and effective communication
systems, to enable members to
conduct their businesses in a
cost efficient way. |
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A reliable
legal framework to protect
sellers and importers. |
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Standard
procedures, aimed at maintaining
a universal quality. |
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Worldwide promotion aimed at
positioning international factoring
as the preferred method of trade
finance. |
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