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COMMERCIAL
BANKING
TERM PROJECT
Presented By:
Rajan A - B12035
Lakshman Singh - B12021
Sunil Manchandia - B12051
A Brand
Agenda
2
Factoring
Steps in Factoring
Factoring Process
Types of Factoring
Pros and Cons of Factoring
Factoring Vs. Bank Loan
Factoring Vs. Bills Discounting
Eligibility and Documentation
Factors Fees and Expenses
Forfaiting
Forfaiting Process
Costs Involved in Forfaiting
Factoring Vs. Forfaiting
Comparative Analysis Bills Discounting, Factoring and Forfaiting
Praxis Business School
Factoring and Forfaiting
Factoring
3
into cash.
Factoring is a transaction where the exporter sells its
A Financial Intermediary
That buys invoices of a manufacturer or a trader, at
a discount, and
Takes responsibility for collection of payments.
parties:
Supplier or Seller (Client)
Buyer or Debtor (Customer)
Financial Intermediary (Factor)
Praxis Business School
Factoring and Forfaiting
Steps in Factoring
5
Step 1
Step 2
Step 3
Step 4
Step 5
Step 6
Step 7
Step 8
Factoring Process
6
Source: HSBC
Praxis Business School
Factoring and Forfaiting
Types of Factoring
8
Types of
Factoring
Disclose
d
Recourse
NonRecourse
Undisclo
sed
Maturity
Advance
Pros
Receive cash as soon as
Cons
It can be expensive
Hamper relationship with
customers
Exiting the agreement
can be difficult
loan.
Factoring is a financial transaction whereby a business sells its
Factoring
Responsibility of collection of
Debts
Can be done with or without
recourse
Pre-payment made against
all unpaid and not due
invoices purchased by Factor
Notice of assignment is
provided to customers of the
Client
credit/ payment risk on factor
Praxis Business School
Factoring and Forfaiting
Bills Discounting
No responsibility of
collection of Debts
Usually done with
recourse
Bill is separately
examined and discounted
No notice of assignment
provided to customers of
the Client
Credit risk on client
concerns
Sole Proprietorships
Partnerships
Private Limited Companies
Other criteria
HSBC
Duty.
Cost of transaction becomes high
Forfaiting
16
Forfaiting Process
17
Pros
100 per cent financing
Improves cash flow
Reduced administration
cost
Increased trade
opportunity
Eliminates the risk of nonpayment
Risk elimination (Exchange
risk, and political risks etc)
Praxis Business School
Factoring and Forfaiting
Cons
It is very expensive
concerned.
Documentation Fee:- where elaborate legal formalities are
involved.
Service Charges:- payable to Bank.
Forfaiting
Calculation
Factoring
Forfaiting
Extent of
Finance
Finance
Credit
Worthiness
Services
provided
Day-to-day administration of
sales and other allied services
Recourse
Sales
By Turnover
By Bills
Comparative Analysis
21
Bills Discounted
Factoring
Forfaiting
Scrutiny
Individual Sale
Transaction
Service of Sale
Transaction
Individual Sale
Transaction
Extent of
Finance
Upto 75 80%
Upto 80%
Upto 100%
Recourse
With Recourse
With or Without
Recourse
Without Recourse
Sales
Administratio
n
Not Done
Done
Not Done
Term
Short Term
Short Term
Medium Term
Charge
Creation
Hypothecation
Assignment
Assignment
22
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