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Factoring is financing against the assignment of a monetary claim, or the resale of receivables to a bank. Factoring results only from contracts that provide for post-payment - that is, with a deferred payment. It turns out that the products have already been shipped, the revenue is shown in accounting (perhaps taxes have already been paid from it), but the money has not yet been received from the buyer. This situation causes a liquidity gap, reduces financial stability organization, violates the production cycle of the organization, and this does not take into account the case of a delay in payment. Factoring avoids the problems associated with such payment. The factor (most often represented by a bank or a specialized factoring company) buys from a supplier accounts receivable buyer. Depending on the role and disclosure of information by the parties, factoring can be of different types.
The advantage of this scheme is obvious - the seller receives the money immediately, which he can dispose of at his discretion. The bank (factoring company) has its own margin from this operation - a certain percentage of the amount of redeemed obligations plus commissions. And then the buyer makes the final settlement with the bank (factoring company).
So the factoring scheme is as follows:
The seller sells the buyer's debt to the factor. In this case, the seller does not experience failures associated with a lack of financial resources. The factor receives a commission for providing services to the seller. The buyer gets the opportunity to defer payment. This is the most simple factoring scheme:
Please note that not every receivable can be factored. DZ is subjected to a thorough check at the preliminary stage, where the reality of its recovery from the debtor is assessed, and, consequently, its financial condition. Also, the package of documents on factoring will be checked by the bank's specialists and it must comply with strict requirements - both legislation and the requirements of the bank.
Factoring with financing implies payment by the bank of the amounts of the supplier's receivables in the amount of about 85% minus the discount (margin to the bank), including early payment. The remaining 15% of the transaction amount is reserved in case of receiving claims for quality, quantity, product parameters. The bank's margin can be expressed as a percentage of the transaction, a commission.
Factoring without financing provides for the transfer to the factor of the right to receive amounts of proceeds. That is, the bank does not pay the invoices issued instead of the buyer (as in the first case), but on the basis of the invoices received from the seller, it demands payment from the buyer on the terms and within the terms specified in the product supply agreements. The factor company plays an intermediary role.
Open factoring provides for the notification of all parties about the participation in the payment process of the factor company (bank). The buyer is notified about the participation of the bank in the settlement process.
With closed factoring, the buyer is not notified about the participation in the calculations of a third party - a factor. The buyer makes a settlement in accordance with the agreement with the seller of the products, and he already independently conducts a settlement with the factor to pay off the payment.
Recourse factoring provides that in case of non-payment by the buyer, the amount Money will be charged to the buyer. The rate for such factoring will be more profitable, since the risk of the factoring company is significantly reduced. The factoring company (bank) will pay the bulk of the buyer's receivables as soon as possible (for example, 95% of the debt when concluding a factoring agreement, the rest - when the debtor fulfills its obligations). Transactions of this nature - factoring with recourse occupy about 88% of the share in the volume of factoring transactions.
Factoring without recourse provides for the factoring company to fully assume the risks of non-payment by the buyer of the amount of receivables, which greatly affects the rate for the use of funds and makes this type of factoring the least common in practice.
Domestic factoring is carried out on the condition that all parties involved are located in the same country.
In external factoring, the parties are in different countries ah, and the factoring agreement is most often concluded for a part of the debt available in a particular country within one or more buyers. This is also called the conclusion of a global assignment agreement.
Possible reasons for denial of factoring services by the bank:
So let's sum up the above. Factoring can be classified as an active banking operation, implying the assignment of rights to monetary claims. Each of the parties involved can derive a certain benefit from this operation - the timeliness of settlements for the supplier, the delay for the buyer, the commission for the factor. The factor can be either a bank (most often in practice) or a specialized factoring company. Not all debt is subject to factoring, and not everyone will be able to finance against the assignment of a monetary claim.
Exists a large number of types of factoring services that differ from each other primarily by the degree of risk that the factoring company assumes.
Factoring without recourse(English) non-recourse factoring) - a type of factoring in which the factor acquires from the client the right to all amounts due from the debtor. If it is impossible to recover the amounts in full from the debtor, the factoring company will suffer losses (albeit within the framework of the financing paid to the client).
Factoring happens open(with notice to the debtor of the assignment) and closed(without notice). He also happens real(monetary requirement exists at the time of signing the contract) and consensual(monetary requirement will arise in the future).
With the participation of one Factor in the transaction, factoring is called direct, in the presence of two Factors - mutual .
When classifying factoring types, it is worth paying attention to invoice discounting, although it has a number of significant differences, despite the fact that it contains features of recourse closed factoring.
Factoring called internal(domestic factoring), if the parties to the contract of sale, as well as the factoring company, are located in the same country.
Factoring is called external (more commonly used name international factoring)(international factoring), if the supplier and his client are residents of different countries.
Under the factoring contract, the convention means a contract concluded between one party (supplier) and the other party (financial agent), according to which:
The Russian Federation is not currently a party to the convention. Factoring appeared in Russia only in March , when Part Two of the Civil Code was adopted .
Article 824 of the Civil Code of the Russian Federation provides the following definition of factoring as financing against the assignment of a debt claim, the definition of factoring itself is missing. Under a financing agreement against the assignment of a debt claim, one party (financial agent) transfers or undertakes to transfer funds to the other party (client) on account of the client’s (creditor’s) monetary claim against a third party (debtor), and the client assigns or undertakes to assign this monetary claim to the financial agent . The monetary claim against the debtor may be assigned by the client to the financial agent also in order to ensure the fulfillment of the client's obligations to the financial agent.
In other words, the actual debts (monetary claims) can be sold by the creditor to a certain person who has free cash (financial agent), who undertakes to pay the client (creditor) the debt of a third party due to him, minus his own interests and commission. And when the payment deadline for the specified amounts comes, the financial agent will recover them from the debtor. A factoring company's commission usually consists of several components - a service commission, a percentage for money, a commission for credit risk and a delivery registration.
The law distinguishes between two types of monetary claims that may be the subject of an assignment: the due date for which has already come, that is, the actual debt, and payment obligations, the due date for which has not yet come (future claims). ..
Thanks to the factoring agreement, the supplier can immediately receive payment from the factor for the shipped goods, which allows him not to wait for payment from the buyer and plan his financial flows. Thus, factoring provides the enterprise with real cash, accelerates the turnover of capital, increases the share of productive capital and increases profitability. In addition to financing working capital in factoring, the bank covers a significant part of the supplier's risks: currency, interest, credit risks and liquidity risk.
At the same time, the creditor, concluding a factoring agreement, gets the opportunity to repay the debt after more long term compared to a commercial loan individual cases debt is rolled over under additional obligations), partial repayment of debt is also allowed, which stimulates the purchase of goods through factoring companies.
Commercial banks and factoring companies expand the range of services rendered with the help of factoring and increase the size of profits.
The beginning of factoring operations was established in England in the 17th century. House of Factors. Before the factor that knew commodity market, the solvency of buyers, the laws and trade customs of a given country, the tasks were to find reliable buyers, store and sell goods, as well as the subsequent collection of trade proceeds.
However, the rapid development of factoring activity is observed in North America only in the second half of the 19th century. At the same time, initially, American factors only accepted goods from manufacturers for sale. This was especially evident in the textile trade. But over time, in connection with the introduction in Europe of high customs duties on textiles, manufacturers began to create their own systems for marketing their products on the European market, which included elements of production. As a result, American factors were forced to change the form of their activity, transforming from intermediaries in the sale of goods (agent factoring) to institutions that finance manufacturers of goods (credit factoring). They also developed their know-how about the method of financing clients, which included discounting and fulfilling the monetary requirements received from clients, as well as taking over financial risks. Factors also included bookkeeping for manufacturers, making cash advances against future receipts from counterparties, and providing loans to purchase raw materials and finance production. Thus, American factors began to carry out activities typical of banking organizations. This scheme has taken root in the United States so much that at present 90% of textile manufacturers use the factoring scheme.
In the early 60s. of the last century, the expansion of American commodity producers began in Western Europe, which led to the revitalization of European factoring companies. Already by the mid-60s. two largest factoring associations were created: IFG (International Factors Group) and FCI (Factors Chain International). The volume of factoring operations has been steadily increasing, and the number of factoring companies operating both domestically and internationally has increased. international markets. This process continues to this day. According to the FCI, the world turnover of factoring operations increased from 1996 to 2001 by more than 2.3 times, amounting to 720.19 billion euros, with more than 96% of the factoring volume accounted for by internal factoring.
The need to unify the regulation of factoring due to the partially international nature of its use led to the convening in Ottawa in 1988 of a diplomatic conference to adopt draft conventions on international factoring and international financial leasing, which were prepared by the International Institute for the Unification of Private Law (UNIDROIT). One of the final documents of this conference was the UNIDROIT Convention on International Factoring, signed on May 28, 1988.
This Convention played a significant role in the development of factoring activities, since the national legislation of many states did not contain practically any rules governing factoring. It served as the basis for the development of national legislation in this area; after its adoption, a number of states introduced factoring into their civil law system.
Civil Code Russian Federation since 01/26/1996 contains the 43rd chapter devoted to factoring relations, which are referred to as "financing against the assignment of a monetary claim".
In the USSR, factoring was introduced in 1988 as an experiment by Promstroybank and Zhilsotsbank. Due to the complete absence at that time of any methodological literature and the inability to gain access to world experience, the essence of this service was somewhat distorted. Only overdue receivables were assigned to factoring departments, the agreement was concluded with both the supplier and the buyer, with the former guaranteed payments by crediting the buyer. Factoring services were of the nature of one-time transactions without providing a set of insurance, information, accounting and consulting services, implied by factoring.
Compared to lending, factoring has a number of significant advantages:
Even the simplest calculations show that, under equal conditions, factoring makes it possible to increase turnover twice as fast in one year as compared to lending to replenish working capital. Using factoring with the receipt of financing from the Factor immediately after the shipment of the goods, you will always have funds for the production / purchase and sale of the goods, without waiting for payment from buyers for the previously shipped goods.
In addition, factoring is not only financing. A full range of factoring services involves managing receivables, covering a number of risks (loss of liquidity, credit, inflation, currency), information and analytical services (special IT that allows you to control the movement of funds, the current state of receivables, payment discipline of buyers, plan daily financial flows companies and generate analytical reports for management decisions). These services form the added value of factoring, which distinguishes factoring from conventional lending.
| Factoring | Credit | Overdraft |
|---|---|---|
| It is repaid from the money received from the client's debtors. | Returned to the Bank by the borrower | Returned to the Bank by the borrower |
| Paid for the period of actual payment deferral (up to 90 - 120 calendar days) | Issued for a fixed period. | Rigid terms for the use of the tranche are established, as a rule, not exceeding 30 days |
| Paid on the day the goods are delivered | On the date stipulated by the loan agreement | The term of the contract is limited |
| The company's transition to settlement and cash services Bank is not required | The bank may include loan agreement condition on the transition of the borrower to settlement and cash services in the Bank | |
| No collateral required | The bank may require to provide collateral for the loan and / or oblige the borrower to ensure the turnover on the current account, adequate to the loan amount | It is envisaged to maintain a certain turnover (5:1) on the current account. No collateral required |
| The size is not limited and can increase as the client's sales volume grows. | Issued for a predetermined amount | The limit is set at the rate of 15-50% of the monthly loan proceeds to the borrower's current account |
| It is repaid on the day of actual payment by the debtor of the delivered goods | Payable on a predetermined date | All credit receipts are automatically debited from the current account to pay off the overdraft and interest on it |
| Factoring financing is paid automatically upon presentation of the delivery note and invoice | To get a loan, you need to draw up a huge number of documents | To obtain an overdraft, it is necessary to draw up a large number of documents |
| Continues indefinitely | Redemption does not guarantee a new | |
| Accompanied by a service that includes: receivables management, coverage of risks associated with deliveries on a deferred payment basis, consulting and much more | When lending, in addition to providing funds to the client and RKO, the Bank does not provide the borrower with any additional services | In case of an overdraft, in addition to providing funds to the client and RKO, the Bank does not provide the borrower with any additional services |
| Civil law contracts | |||||||
|---|---|---|---|---|---|---|---|
| Transaction Invalidity of the transaction Agreement Offer Acceptance Quasi-contract | |||||||
| for the transfer of property into the property |
purchase and sale (retail supply supply for state and municipal needs contracting energy supply sale of real estate sale of an enterprise) exchange of donation of rent (permanent life maintenance with a dependent) privatization of housing | ||||||
| for the transfer of property for use |
lease (vehicles enterprise buildings and structures rental leasing) rental housing loans | ||||||
| for the performance of work | contract (domestic construction for the implementation of design and survey work for the performance of work for state and municipal needs) participation in shared construction R&D | ||||||
| on the provision of services |
|
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| for the implementation of the results intellectual activity |
alienation of exclusive rights | ||||||
When looking for funds for the development of production, all financial services can be considered. 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 is to get a loan. However, the market for banking services is much broader, and banks can finance by more than just lending. There is, for example, factoring, which will be of interest to manufacturers and wholesalers. This service is provided not only by banks, but also by others. commercial organizations.
There are 3 parties involved:
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 signed by the buyer and seller. After that, the seller ships the goods to the buyer's warehouse. The supplier submits the purchase documents to the bank, credit organisation transfers money to the supplier's account (in accordance with the agreements, payments can be split). The buyer settles with the bank, the bank transfers the balance to the supplier minus the commission. Thus, the supplier does not wait for payment from the buyer, but receives it much earlier. For this, he pays the bank a commission (around 10% of the shipment amount). Several factors may be involved in one transaction.
Benefits for the buyer:
Benefits for the supplier:
Benefits for the bank:
However, there are also disadvantages to this procedure. Firstly, 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, the longer disputes are resolved.
Other features of factoring:
There are several types of factoring. The first (main) difference between them is riskiness, the second is the moment of occurrence of monetary requirements.
The service assumes that the bank acquires all the debt of the buyer. However, if it is impossible to recover funds from the debtor, the following suffers losses:
A claim may arise:
There are also other classifications depending on other criteria, such as whether all parties are located in the same country or located outside the same country.
Historians argue that factoring is the oldest form of lending, which is more than one millennium old. Of course, in ancient civilizations, slightly different schemes were used, but there were features of factoring operations. However, the service did not receive a strong development then.
A natural impetus to development happened only in the 14th century in England. This is how intermediaries appeared, organizing the interaction between manufacturers and end buyers. The task of the factors included the search and analysis of buyers, the provision of storage of products, and the collection of trade proceeds. Intermediaries have allowed remote businesses to focus on manufacturing rather than finding outlets. They greatly helped remote companies sell their products. The factors of that time were completely responsible for the search for markets and the assessment of the reliability of buyers.
A surge in the popularity of factoring in the United States occurred in the 19th century. At this time, many companies providing such a service were formed here. Agents provided trade between remote settlements and different states. For a fee, they guaranteed payment for all goods.
In Europe, factoring was developed in the second half of the 20th century with the growing popularity of installment payment services. At this time, the Europeans were short of funds, so the tendency to sell goods first and then pay suppliers became quite popular.
By the end of the 20th century, factoring reached a new level - international. Now parties from different countries could participate in one transaction. This required regulation of 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.
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 and definition of factoring, there is a mention of transactions with exactly the same mechanism.
Factoring has become widespread at the international level, and the UNIDROIT Convention (Ottawa, 1988) was adopted to regulate them. Russia joined it in 2015. It explains in detail general provisions and the scope of the service, the rights and obligations of all participants in the transaction are given, the rules for assignment of claims are indicated.
What is factoring, in Russia learned in 1996, along with the release of the first part of the Civil Code. This scheme of work with suppliers and buyers was experimentally introduced in the USSR. However, due to the lack of such experience, command economy and the closed borders, the scheme was distorted: banks worked with overdue debts.
Factoring has been developing in Russia since 2002. Its volume in 2002 amounted to 168 million euros, and in 2003 already 485 million euros. However, in last years Growth decreased, in 2014 it fell from 30 to 9% (although 5% was expected according to forecasts). The fall is caused by a difficult economic situation, which resulted in an increase in bankruptcies of enterprises.
In simple terms, factoring is a service involving 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 transaction is beneficial to all three parties, but the supplier and the bank receive the most benefits. For the buyer, there is no significant difference to whom to pay the money.
Despite the temporary recession, the growth of the factoring market will continue further; in Russia, this service is provided by such companies and banks as Alfa-Bank, Promsvyazbank, VTB-factoring and others.
Factoring is banking service for suppliers working on the terms of deferred payment. 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 the basic definitions and try to visually understand this scheme.
Factoring is a set of financial services for the 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 credit for a supplier.
A factoring organization or a bank pays its client money for sold products instead of the buyer, and he transfers the right to claim receivables to the agent. As a result, both parties get their benefit: the creditor gets real money, and the bank earns on operations - part of the debtor's debt plus a commission.
Participants in a factoring operation are three actors: an agent (or factor) - this role is performed by a bank or a specialized firm, the supplier (or creditor) and the buyer (or debtor).
The factor provides credit to the client by buying back receivables from him, usually short-term. They sign an agreement between themselves, according to which the supplier provides invoices and other documents to the factor. Documents are provided as requirements for the buyer are formed and confirm the shipment of goods, its amount and the occurrence of receivables. The factor discounts the confirmed amount and transfers part of the money to the supplier. The amount is most often limited to 90%. When the buyer makes the payment, the factor pays the rest of the amount to the lender, having previously deducted interest for the loan and a commission for services.
Typically, the factor takes over issues related to the management of receivables: accounting and analysis, monitoring the solvency of the buyer. Factoring companies employ only those counterparties with whom the supplier is able to confirm relations with firm contractual relations and decent statistics of shipments and payments, since factoring is considered to be a highly profitable, but at the same time very risky operation.
For more information about this term, you can see the following video:
Factoring operations are classified according to several criteria:
Factoring transactions can also be classified depending on the party that initiated such calculations. Typically, this party is the supplier. There is also reverse factoring, when the buyer himself becomes the initiator. 
Factoring is often confused with forfaiting, which is also a specific type of trade lending. Forfeiting involves the agent/forfaitor buying from the lender debentures the commercial nature of its borrower.
Among the main differences are:
Factoring services in Russia have been developed relatively recently, so the area of such financing in our country is quite young. Attempts to introduce factoring operations were made 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 established only in 2007.
The main players include:
Services are also provided by other banks and organizations, among the leaders it should also be noted Alfa-Bank, Petrocommerce Bank and National Factoring Company. Business representatives can easily find the right offer for their situation. 
Computer LLC, which supplies computer equipment and components, on September 1 signed a contract with Zakazchik LLC for the supply of equipment in the amount of 1.2 million rubles. subject to payment within 30 days from the date of shipment.
On September 5, Computer LLC shipped goods according to the specification for the contract. In September, Computer LLC experienced a shortage of funds for the purchase of the following batches of equipment, so it turned to Factor Bank and signed an agreement with it for the provision of factoring services, according to which it cedes the right to claim against Customer LLC.
The terms of the agreement with Factor LLC: financing in the amount of 75% of the debt amount, agent commission in the amount of 8%. LLC "Computer" provides the agent with an invoice for shipment and other documents confirming the receivables of LLC "Customer". On September 10, Factor Bank finances its client Computer LLC in the amount of 75% agreed upon under the agreement: transfers 900,000 rubles to his account.
At the end of the deferred payment, the bank submits a payment request to OOO Zakazchik, the company transfers the entire amount of the debt to the bank: 1.2 million rubles. The bank withholds its commission in the amount of 8%: 96,000 rubles. The balance is transferred to Computer LLC: 204,000 rubles. Thus, Computer LLC receives as a result 1,104,000 rubles, and the bank makes a profit in the amount of a commission of 96,000 rubles.
