Factoring as a form of financing the activities of organizations. Factoring as a method of financing innovation. Credit or Factoring
6. The essence and importance of factoring in financing innovation. Subjective composition of factoring transactions. Factoring efficiency conditions.
7. Scheme of organization of factoring operations.
8. Features and advantages of factoring. The difference between factoring and other legal institutions.
9. Classification of factoring transactions by region, by confidentiality, by the presence of recourse rights, by method of payment, depending on the subject composition of the operation.
Topics of abstracts and reports.
1. Organization and technology for monitoring the effectiveness of innovation activities.
2. Determining the impact of factoring on accelerating the turnover of receivables.
3. Calculation of the effectiveness of factoring.
KNOWLEDGE CONTROL
QUESTIONS FOR THE EXAM
1. Innovation: essence, characteristic features.
2. Types of innovations, classification by content, level of novelty, areas of application and other characteristics.
3. Typical mistakes when making management decisions in the field of innovation.
4. Innovative activity: goal, objectives, stages. Basic research. Contents of R&D (scientific research work). Contents of R&D (experimental design developments).
5. Marketing of innovations, its characteristics, specific influence on innovation activities.
6. Characteristic features of innovative activity. The cyclical nature of innovation activity.
7. Innovation activity and product life cycle (micro level).
8. Technological work, production preparation and industrial testing.
9. Acquisition of patents, licenses and know-how.
10. Investment activities necessary for the implementation of innovative projects.
11. Marketing and organization of sales markets for innovative products. Training and retraining of personnel for innovative activities.
12. Relationship between sources of financing of innovation activities and its types.
13. Extra-budgetary funds: own funds of organizations carrying out innovative activities, funds of investors, venture investments.
14. State regulation of innovation activities.
15. The role of the state in the formation and implementation of scientific, technical and innovation policy.
16. Problems and prospects for enhancing innovation activity in various countries: USA, EU states, Russia, Belarus, etc.
17. New approaches to the formation of state innovation policy.
18. Development of innovation policy of the Republic of Belarus: goal, objectives of innovation policy, implementation mechanism.
19. Scientific and technical priorities: concept, justification.
20. Criteria for choosing priority areas in the field of scientific and technological development in the Republic of Belarus.
21. Innovations and their structure-forming role in the economy.
22. Direct and indirect methods of state support for scientific, technical and innovative activities.
23. Principles and methods of forming a national model for regulating innovation activities.
24. State programs: purpose, objectives, development procedure. Innovation funds: education and use.
25. Foreign experience in supporting innovation activities.
26. The state and the market of scientific and technical products.
27. National innovation system.
28. Budget financing is the main form of direct government financing of innovation activities.
29. The main sources of direct government financing of innovation activities in the Republic of Belarus. Objects of direct state financial support in the innovation sector.
30. R&D of defense production or military nature, space research.
31. Toolkit for state financing of innovation activities.
32. Direct financing (direct budgeting of fundamental research and applied developments aimed at environmental, social, defense purposes).
33. Indirect financing (creating favorable conditions for R&D).
34. Subjects of research activities in need of direct government support.
35. Organizations related to the defense sector of the economy, organizations, the overwhelming majority of whose work cannot be guided by commercial criteria, but whose existence and development are vital for society; profit-oriented business entities engaged in innovative activities.
36. Forms of direct government support for innovative projects. Sources of government funding for innovative projects. Budgetary and extra-budgetary funds for financing research and development work. Practice of creating budgetary funds for financing innovations.
37. The role of extra-budgetary funds in financing the innovation sector.
38. Methods of indirect government financing of innovation: tax benefits, accelerated depreciation, preferential lending.
39. Tax benefits.
40. Non-tax areas of indirect financing of the innovation sector.
41. The essence of shareholder financing of innovation. Advantages
42. equity financing through various types of shares.
43. Organization of the issue of shares. Determining the cost of equity financing for the issuing enterprise.
44. Characteristics of financing innovation through bond issues. Advantages of a bond loan over other methods of financing innovation.
45. Determination of the cost of bond borrowing for the issuing enterprise.
46. The essence of oar financing of innovation. Using promissory notes to finance innovation.
47. The role of bills of exchange in financing innovation activities. Organization of forfeiting bills.
48. Foreign experience in organizing bill programs.
49. The essence and importance of factoring in financing innovation.
50. Subject composition of factoring transactions. Factoring efficiency conditions.
51. Scheme of organization of factoring operations.
52. Features and advantages of factoring. The difference between factoring and other legal institutions.
53. Classification of factoring transactions.
54. Determining the impact of factoring on accelerating the turnover of receivables.
55. Calculation of the effectiveness of factoring.
Questions for self-control on topics and assignments for independent work
Topic 1. The essence and significance of innovation.
Test
Select one or more correct options from the options provided.
1. Main groups of subjects of the innovation process:
a) innovators;
b) early recipients;
c) early majority;
d) early minority;
d) lagging behind.
2. The innovation process proceeds:
a) evenly;
b) gradually;
c) cyclically.
3. Production technology includes:
a) basic technologies;
b) input resources;
c) organization and provision of production and quality conditions;
d) scientific research.
4. Types of innovation that economic theory identifies:
a) introduction of a new product;
b) creation of a new product;
c) introduction of a new production method;
d) creation of a new market;
e) development of a new source of supply of raw materials or semi-finished products;
f) reorganization of the management structure.
5. Depending on technological parameters, innovations are divided:
a) for grocery;
b) production;
c) technological;
d) process.
6. Innovations in the field of organization and management of production, information technology, utilities and social services include:
a) to the technological results of innovative activities;
b) independent results of innovative activities;
c) the combined results of innovation activities.
7. Depending on the depth of changes introduced, innovations are distinguished:
a) cardinal;
b) radical (basic);
c) improving;
d) modification (private).
8. Process innovation is:
a) development of new or significantly improved production methods;
b) changes in equipment or production organization;
c) both.
9. Innovative technologies and production of innovative products exist:
a) separately from each other;
b) interact occasionally;
c) are inextricably linked.
Topic 5. Direct government funding of R&D and innovation activities.
Exercise 1.
The Airwave company, a leading manufacturer of air conditioners in the world, is interested in expanding the sales market in the Republic of Belarus. Alternat LLC has developed and mastered the production of its own air conditioners. Alternat LLC decided to enter into a licensing agreement for the sale of its own air conditioners under the Airwave trademark. It is planned that air conditioners under this brand will be produced along with our own.
To determine the most effective form of payment from the point of view of Alternat LLC under a license agreement for the right to use the Airwave trademark.
Private label air conditioners sell for $50. USA. If you use the Airwave trademark, they will cost $75. USA. Airwave offers an alternative to settlement under the license agreement: a) lump sum payment in the amount of 1.5 million dollars. USA; b) rental payments from the amount of products sold at the maximum rate (corresponding to the standards).
1st year - 10,000 units;
2nd year - 15,000 units;
3rd year - 15,000 units;
4th year - 18,000 units;
5th year - 18,000 units.
Task 2.
The company offered to purchase, under a license agreement, an industrial property object in the form of a prototype in the field of battery manufacturing. It is planned that they will be produced within five years. Royalties on the cost of products sold are assumed to be maximum in accordance with regulations. At the same time, the company agrees to a lump sum payment of $45,000. USA.
Product price – 150 dollars. USA.
Which option of payment for the right to use an industrial property object will be economically justified if the planned output volume is:
1st year - 10,000 units;
2nd year - 20,000 units;
3rd year - 20,000 units;
4th year - 20,000 units;
5th year - 20,000 units.
Inflation in US dollars is 1% per year.
Topic 6. Indirect government funding of R&D and innovation activities.
Self-control test
Select one or more correct options from the options provided.
1. Science and innovation infrastructure facilities include:
a) concerns and associations;
b) public academies;
c) technology parks.
2. Venture business is characterized by:
a) for large companies;
b) medium-sized firms;
c) small firms.
3. The infrastructure objects of science and innovation are:
a) centers of scientific and technical information;
6) state research centers;
c) public academies.
4. Business incubators contribute to the development of:
a) a specific product;
b) production project;
c) an independent economic entity.
5. The components of the technology park are:
a) business incubators;
b) small scientific and technical enterprises;
c) technopolises.
6. Business incubators can be divided into four main types:
a) corporate;
b) academic;
c) public;
d) university;
d) private.
7. Sources of income for business incubators as a commercial enterprise:
a) rent;
b) sale of various types of services;
c) participation in the profits of those incubated companies in which the park (incubator) as an enterprise has invested its funds;
d) sale of property, including land plots.
8. The business incubator consists of the following highly professional structures:
a) expert advice;
b) BI analytical council;
c) the control unit of a business incubator.
9. Business incubators act as:
a) independent organizations;
b) cores of technology parks;
c) managers of the technopolis.
A new credit product that has become widespread in foreign practice is factoring. It arose on the basis of commodity credit and was formed as an independent credit product in the middle of the 20th century. In its most general form, factoring can be defined as the activity of an intermediary bank or a specialized institution (factoring company) to collect funds from the debtors of its client (industrial or trading company) and manage its debt claims. The activities of factor intermediaries are designed to solve problems of risks and payment terms in relations between suppliers and buyers and give these relations greater stability.
Factoring(from Latin factor - “agent, intermediary”) - a type of trade and commission operation combined with lending of the client’s working capital, which is associated with the assignment by the client-supplier to a factoring company (factor-company) of unpaid payment claims for products supplied, work performed, services provided and, accordingly, the right to receive payment for them. Factoring includes collection of client's receivables, lending and guarantee against credit and currency risks.
Factoring is a combination of supplier credit with commission services consisting of the taking of credit risks by the factoring firm. In this case, the factor company assumes the obligation to collect unpaid debts. The factor firm is usually associated with the bank (it is its subsidiary).
In Russian conditions, factoring operations are carried out by specialized departments of banks.
The factoring operation scheme consists of two parts (Fig. 1.1):
1) payment by the factor company of 80–90% of the contract amount;
2) payment of the balance of the contract minus commission services (including a risk premium) after settlements with buyers.
Fig.1. Factoring scheme
Factoring is a young but developing branch of the global financial industry. It originated in the 60s, but by now the global turnover of factoring operations has reached $395 billion. Its main goal is to maintain the liquidity of supplier enterprises; scope of application – short-term contracts for small amounts for the purchase of equipment concluded in the field of medium and small businesses.4
The essence of factoring is the provision by the bank of monetary resources and services to trading, manufacturing and service companies (hereinafter referred to as suppliers): covering a number of risks that occur in the trading operations of companies, managing receivables, consulting, information and analytical services.
Let's take a closer look at the financing mechanism for factoring. After delivering the goods to the debtor, the supplier provides the bank with an invoice and immediately receives a significant part in the form of an advance, up to 90% of the delivery amount, without waiting for payment from its buyer. The remaining funds for deliveries (minus the bank commission) are credited to the supplier's current account as they are actually paid by the buyers to the bank's factoring account. Those. in this case, the bank acts as a person advancing the trade credit provided by the supplier to the buyer with the subsequent return to him of the balance of the delivery amount.
The supplier gets the opportunity to plan its financial flows regardless of the payment discipline of buyers, being confident in the unconditional receipt of funds from the bank against accepted shipping documents for deliveries with deferred payment. Often, the supplier’s trade turnover is limited only due to the fact that the buyer is not able to pay for a larger volume of purchases without having sufficient working capital for this, and the supplier, accordingly, does not have the working capital necessary to provide or increase trade credit to the buyer. This form of factoring allows the supplier to offer its customers a trade credit, limited only by the buyer’s sales capabilities.
The difference between factoring financing and other banking products. Sometimes they try to compare factoring with a loan, although factoring and bank loans have different natures and are aimed at meeting different needs of suppliers.
The loan is characterized by urgency, which implies its repayment after a certain period. Thus, a bank loan is absolutely unacceptable for financing supplies with deferred payment. If a six-month loan is used to finance shipments of goods with deferred payment, then how will the company’s operating conditions change in the situation of repaying the trade loan, and what will happen if the supplier fails to obtain a new loan after its repayment. Today in Russia, most loans are issued for a period of up to a year, which leads to situations like this. Factoring today is the only open-ended liability in the Russian economy and allows you to plan a development program for many years to come.
Another feature of the loan is the need to provide collateral to obtain it. The fundamental difference between factoring and credit is that the loan is focused on the company’s past successes, on those assets that were earned yesterday, while factoring is focused on future sales successes, and even if sales increase 5 times, this will not be a limitation for financing within the framework of factoring. A more detailed comparison of factoring financing with other credit products is presented in Table 1.
Table 1. Difference between factoring financing and other credit products
Factoring is one of the sources of financing the operating activities of an enterprise.
Factoring is a long-term agreement under which an intermediary (factor) acquires the accounts receivable of an enterprise, assumes the risk of non-payment on any of the accounts and is responsible for ensuring that money is received for payment.
The factor also conducts a credit check on all clients. The factoring company buys from the supplier company its payment documents for the amount S and thereby assumes the obligation to recover the entire amount from the buyer, taking into account late fees. A typical scheme of factoring operations is shown in Fig. 13.8.
Fig, 13.8. Factoring process:
1 - delivery of goods on credit; 2 - the agent issues an invoice to the buyer; 3 - payment of an advance payment (up to 80% of the principal amount); 4 - the buyer returns the money to the agent; 5 - payment to the company of the remaining 20% minus commission to the factor and interest on the loan
The differences between factoring and credit are listed in table. 13.6.
Differences between factoring and credit
Table 13.6
|
where 5 is the amount paid by the factoring company
to the client; r - interest rate for operations of similar risk; T is the duration of the factoring agreement.
There are two forms of factoring. According to the first of them - traditional factoring - the factor performs the function of lending money, making advance payments even before the receipt of money from debtors. The factor typically pays 70-90% of the invoice amount upfront and charges interest at a rate that is 1-1.5% higher than for conventional borrowers. The remaining amount acts as an insurance fund and is paid if the consumer enterprise pays the payment documents in full, thereby insuring the risk of consumer refusal to accept or bankruptcy. The amount of the advance depends on the degree of dilution of accounts receivable due to the presence of doubtful debts, slow turnover, etc. The share of the insurance fund can be determined as the standard deviation of the data obtained using the following formula:
 |
where S3 is the amount spent by the bank on the acquisition of receivables; Sn is the amount received by the factor after the end of the factoring agreement.
In the second form - term factoring - the factor does not lend money. The enterprise and the factor agree on the limits of the loan and establish a periodically updated average period for the factor to receive money from all debtors. The factor pays the company amounts based on the agreed period, regardless of whether the client has paid the factor or not. For example, at the end of a normal 30-day period, the debtor paid only RUB 5 million. on an account for a total amount of 10 million rubles. The factor transfers the entire amount of the invoice to the enterprise, and charges interest on the remaining amount of the debt. This type of factoring allows you to insure against doubtful debts.
Thanks to the use of factoring, an enterprise can:
Accelerate the turnover of working capital and thereby reduce the need for financing;
Limit the amount of expenses associated with servicing loans, collecting accounts receivable and accounting for them;
Protect yourself from doubtful debtors.
The main advantages of factoring are listed in
table 13.7.
Advantages of factoring
Table 13.7
|
The main component of the effect of factoring is the receipt of money immediately after shipment of products, and these funds are the enterprise’s own funds, and not borrowed.
Issues for discussion
1. What is the difference between different types of working capital management policies? At what stages of the life cycle can one or another type of working capital management policy be used?
2. What factors influence the company's need for working capital? How can the influence of these factors be taken into account when managing working capital?
3. What cash flows arise when providing discounts to companies? How can you calculate the feasibility of providing discounts?
4. What tools can be used to manage accounts receivable? I I
One of the methods of financing entrepreneurial activity is factoring operations - a type of trade and commission operation. Factoring– assignment to a bank or specialized factoring company of unpaid debt claims (receivables) arising between counterparties in the process of selling goods and services on commercial credit terms, in combination with elements of accounting, information, sales, insurance, legal and other services of the supplier company.
There are three parties involved in factoring operations:
– factoring company or bank factoring department- a specialized institution that purchases requirements from its clients for their customers. In fact, the purchase of receivables and financing of client firms occurs;
– client company(supplier of goods, creditor) – a company entering into an agreement with a factoring company;
– borrowing company- buyer of goods.
Factoring operations help speed up settlements, save the company's working capital, and also accelerate the turnover of the company's working capital. Factoring services are most effective for small and medium-sized companies that traditionally experience financial difficulties due to late repayment of receivables and which are limited in obtaining a bank loan. Thus, factoring services provide the following advantages for the supplier company:
– the possibility of financing using the funds of a factoring company before the payment deadline;
– reducing the financial risk of the company;
– the possibility of obtaining from the factoring company information about the solvency of buyers – clients of the company.
However, not all business firms are subject to factoring services. Thus, factoring companies, as a rule, do not accept the following services:
– companies with a large number of debtors, the debt of each of them is expressed in a small amount;
– firms engaged in the production of non-standard or highly specialized products;
– companies working with subcontractors;
– companies selling their products on after-sales service terms;
– firms that enter into long-term contracts with their clients and issue invoices upon completion of certain stages of work or before deliveries are made.
Factoring operations are also not carried out on debt obligations of branches or divisions of business firms.
There are several main types of factoring operations, classifying them based on various characteristics. Factoring operations can be domestic and international. In the event that the supplier company and its client, i.e. the parties to the purchase and sale agreement, as well as the factoring company, are located in the territory of one country - this is interior factoring. If the participants in the factoring agreement are located in different countries, this international factoring.
In an international factoring transaction, a distinction is made between direct and indirect factoring. Feature direct factoring is the presence of only one factor fulfilling obligations to the exporting supplier, as well as the fact that the factoring company itself makes a demand for payment of the delivered goods to the importer. In direct factoring there are: direct import factoring and direct export factoring.
At direct import In factoring, the supplier company assigns the right of claim to a factor located in the importer’s country. This type of factoring only makes sense when exports are made to one or two countries. If the exporter supplies goods to a larger number of countries, then it is more convenient to enter into one agreement with a factoring company in his own country than several direct agreements with factoring companies in other countries. Direct import factoring can be used by companies that do not need urgent financing for assigned claims.
Direct export factoring is that the supplier assigns the right of claim to a factoring company located in the same country as the supplier.
Indirect factoring allows a factoring company located in the country of the exporting supplier to enter into a subfactoring agreement with a factoring company located in the country of the debtor-importer, thus, the debtor pays the amount of debt to the factor company located in the country of its activity, and that, in turn, pays a factoring company located in the supplier's country. However, a subfactoring agreement is concluded in cases where such a transfer is not prohibited by the factoring agreement.
There are open and hidden factoring operations. Open– if the debtor is notified that the claim has been sold to a factoring company. At hidden (quiet) In factoring, the client enters into an agreement with the factoring company without notifying his customers about it. This classification feature is the main one, since in this case the organization of the factoring operation depends on the type of agreement. The fundamental difference is who the purchasing firm ultimately pays the bills to. With open factoring, payment is made directly to the factoring company, and with silent factoring, payment is made to the supplier company, since the buyer is not notified of the participation of the factoring company.
A type of open factoring is semi-open factoring. In this case, the supplier does not inform the debtor in advance about the conclusion of a factoring agreement, but when it issues invoices to him, he is obliged to indicate both the agreement concluded with the factor and the number of his account to which the payment will be sent.
In addition, the factoring agreement can be with or without recourse. Availability rights of recourse provides for the possibility of a return claim to the supplier company to reimburse the amount paid if the buyer refuses to fulfill its obligations, i.e. in this case, the credit risk is borne by the supplier company. If a factoring agreement is concluded without recourse, then in this case, along with the sale of monetary claims to the factoring company, credit risk is also transferred.
When entering into an agreement with recourse rights, the supplier company continues to bear some credit risk on the debt claims sold to the factoring company. This condition is usually provided if the supplier is confident that he cannot have doubtful debt obligations, or due to the fact that they carefully assess the creditworthiness of their customers-buyers, so the supplier company does not consider it advisable to pay for credit insurance services. risk.
Factoring agreements can be concluded with the provision of credit to the supplier in the form of advance payment or payment of claims by a certain date. If there is a condition for prepayment up to 80% of the claims assigned by the supplier company are paid in the form of an advance payment, the remainder is paid by the factoring company after receipt of funds from the payer. At payment of claims for a certain date, the amount of assigned debt claims (minus costs) is transferred to the supplier company on a certain date or after a certain time.
An agreement on factoring services is concluded between the supplier company and the factoring company, usually for a period of 1 to 4 years, and its validity can be terminated for the following reasons:
– mutual consent of the parties;
– desire of the factoring company;
– desire of the supplier;
– insolvency of the supplier.
Under the first two conditions, the supplier must find some other source of funds and buy back the claims assigned to the factor firm. In turn, the factoring company informs payers that from this moment all payments are made in favor of the supplier.
The factoring agreement must stipulate the rights and obligations of each party; procedures for granting loans to suppliers, assignment of debt claims and their collection; the procedure for implementing mutual demands; limits on the amounts within which credit risks are insured.
The contract should also specify the fee to be charged to the supplier. In international factoring practice, there are two ways for a factoring company to generate income: in the form of a discount and in the form of remuneration for services rendered.
The first method is used if the factoring company finances the supplier. In this case, the discount is defined as the difference between the value of the assigned claim and the amount paid to the supplier. This difference increases or decreases depending on the following conditions:
– the period between the date of payment by the factor firm to the supplier and the date of receipt of payment from the debtor;
– reliability of the supplier;
– additional obligations fulfilled by the factoring company to the supplier.
If the factoring agreement stipulates the services that the factor firm provides to the supplier, then they must be remunerated. The amount of remuneration depends on the amount of work performed by the factoring company and is calculated as a percentage of the supplier’s annual turnover. Its specific value depends on the degree of credit risk, the creditworthiness of buyers, the scale and structure of the supplier’s production activities. The amount of remuneration, as a rule, ranges from 0.5-3% of the amount of transferred accounts. If there is recourse, a discount of 0.2-0.5% is usually made.
Lipaeva Elena Evgenevna
Faculty of Economics and Management, branch of the federal state budgetary educational institution of higher professional education "National Research University "MPEI" in Smolensk, Russia
Abstract: the article discusses factoring and other forms of business financing, as well as difficulties with sources of lending for medium and small enterprises. Options were proposed to eliminate these problems, and the prospect of using factoring as a financial and credit service for small businesses was also considered.
Key words: factoring, forfaiting, franchise, lending
Factoring and other forms of business financing
Lipaeva Elena E.
Faculty of Economics and Management, a subsidiary of the federal government"s budget educational institution of higher professional education "National Research University" MEI "in Smolensk, Russia
Abstract: The article discussed factoring and other forms of business financing, as well as difficulties with sources of credit for small and medium enterprises. Options have been proposed to resolve these issues, as well as has been considered the prospect of using factoring as a financial and credit services small businesses.
Keywords: factoring, forfeiting, frenchayz, lending
Factoring - as an economic category, is a type of trade and commission operations in which a bank or a specialized factoring organization buys the monetary claims of a supplier to a buyer and collects its receivables.
Understanding the economic essence of factoring is associated with understanding its place in the system of other forms of business financing.
An operation similar to direct export factoring is forfaiting, which is understood as lending to the exporter by purchasing commercial bills accepted by the importer without recourse to the seller. In fact, forfeiting can be considered as a way to refinance a commercial loan in foreign trade.
The similarities between export factoring and forfaiting and the differences between them are presented in Table 1:
Table 1 - Comparison of export factoring and forfeiting
|
Similarities |
Differences |
||
|
Credit provided in commodity form is transformed from commercial to banking; A third party appears in the relationship between supplier and buyer; The supplier is relieved of functions not related to production; Supplier risks are reduced; High cost of operations. |
grounds |
Export factoring |
forfaiting |
|
Short-term lending (90-180 days) |
Medium-term lending (from 6 months to 5-8 years) or long-term lending (up to 11 years) |
||
|
The factor takes part of the exporter's risks |
All risks of the exporter are transferred to the forfaiter |
||
|
Nature of the operation |
Assumes constant communication between the parties and the presence of a comprehensive service system |
Is a one-time operation associated with the collection of funds under a specific document |
|
|
Nature of the requirements |
The debtor has the right to make demands on the supplier, on the factor |
The debtor has no right to make claims against the forfaiter |
|
One more feature of forfeiting should be highlighted - the presence of a secondary market where resale of purchased commercial bills is possible. But such a market does not yet exist in Russia. At present, only isolated such transactions can be considered. This is due to the unwillingness of banks to accept medium-term risks from developing countries, and there is high competition in rates for risks from developed countries. The main players in the forfaiting market in Russia are foreign forfaiters: London Forfaiting Company, which has a representative office in Moscow, the German bank WestLB, which has its own subsidiary, WestLB Vostok.
Factoring is often equated with a bank loan, which is incorrect. It is necessary to compare factoring and lending. The comparison is shown in Table 2.
Table 2 - Comparison of factoring and lending
|
Criteria |
Factoring | |
|
subjects |
Bank or specialized company, supplier, buyer |
Bank, client |
|
Financing terms |
Period of actual deferred payment (90-180 calendar days) |
fixed term |
|
Repayment terms |
Day of actual payment by the debtor for the delivered goods |
Prearranged day |
|
Payment terms |
Product delivery day |
The day specified in the loan agreement |
|
Terms of service |
Indefinitely |
Repaying a loan does not guarantee that you will receive a new one |
|
Repayment method |
From money coming from customer debtors |
Returned to the bank by the borrower |
|
Security |
Not required. Only the history of the client’s work with his debtors matters |
Issued on collateral and provides for turnover on the current account adequate to the loan amount |
|
Unlimited and can increase as the client’s sales volume grows |
Issued for a predetermined amount |
|
|
Reward |
Depends on the amount of debt transferred to the financial agent |
Loan interest rate |
|
Decor |
Factoring financing is paid automatically upon presentation of the delivery note and invoice |
A large number of documents are required |
|
Escort |
Information, accounting, consulting, legal and other services, accounts receivable management |
Mandatory transfer of the borrower to cash settlement services at the bank |
The table data shows that the financial products under consideration are aimed at satisfying different needs of suppliers in different ways. The only thing that is common is the essence of the operation – financing.
Knowledge of these provisions will allow you to more effectively use the instruments offered by the financial services market and competently manage the finances of a business entity.
At the present stage, lending under a franchise type contract is distinguished - a form of relationship between large and small businesses, when a medium-sized company receives assistance from an industrial or trading transnational company in the form of a cash loan, leasing, and factoring.
Currently, factoring is a means of increasing the liquidity of assets and turnover of funds of enterprises, primarily small and medium-sized ones. These enterprises, while helping to stabilize the consumer and labor markets, accelerate the development and introduction of technical innovations into production, and revive export activities, traditionally experience difficulties with sources of credit. This appears to be due to the following reasons:
Firstly, the inaccessibility to them of ordinary capital markets and the money market, as a result of which their need for short-term and bank credit increases to replenish working capital. The issue of securities in small amounts is quite an expensive undertaking for such enterprises, and the market for such securities is much narrower compared to financial instruments of larger securities;
Secondly, discrimination in providing them with a bank loan - they are required to provide greater guarantees. Due to the fact that this category of borrowers has questionable creditworthiness, it is not profitable for credit institutions to fully satisfy the needs of small businesses for loans, especially for small amounts and for risky activities;
Thirdly, the high cost of borrowing for small businesses.
Fourthly, financial difficulties when exporting products, including: lending and deferred payment; preparation of special documents for export of products; lack of necessary information about foreign markets; the need to comply with product requirements other than internal ones; lack of representation abroad; increased costs and decreased profitability.
The following factors will influence the intensification of banks’ activities in the field of small business lending:
High level of competition in the segments of servicing large corporate clients and consumer lending, leading to a decrease in margins with growing risks. The increasing attractiveness of this direction is due to the fact that the cost of borrowing for medium and large enterprises is much lower than for small ones, and the risks in these sectors differ to a much lesser extent;
The desire of banks to diversify their loan portfolio. This is facilitated by a large number of small borrowers;
Interest from the state in the issue of small business development. But at the same time, many financial institutions that actively work with small businesses registered as legal entities refuse to lend to individual entrepreneurs.
In this regard, the use of various non-traditional types of financial and credit services for small businesses, including leasing and factoring, is promising.
The effectiveness of factoring as a means of financing a small business is determined by the fact that the company not only acquires a good reputation, but can also count on a discount for immediate payment, usually in the amount of 2–3% of the payment amount. Factoring, with its wide and flexible range of services, is one of the most attractive forms of lending for both domestic and export activities of small and medium-sized enterprises, facilitating their entry into a competitive situation with minimal initial capital.
However, factoring is attractive to most corporations, regardless of the size of their business. It allows small companies to receive financing without collateral. Medium-sized enterprises are attracted to factoring by risk insurance and administrative management of receivables. For large enterprises, factoring allows them to “clear” their balance sheet – reduce accounts receivable without increasing accounts payable. This is especially important if the company plans to attract investors. In addition, for large enterprises the issue of getting rid of accounts receivable is always relevant.
Bibliography:
- Raizberg B. A., Lozovsky L. Sh., Starodubtseva E. B. Modern economic dictionary. M., 2008, p. 436
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