For today the factoring agreement is one of the most often concluded and popular kinds of transactions. Thanks to the new legislation possibility of borrowers and suppliers have considerably grown, and risks of loss of tangible assets have decreased.
The factoring is a whole range of services which bank (or the factoring organization) renders to the various companies and firms which work with the clients on a condition of granting of a delay of payments.
Besides standard service of factoring which gives and receives money funds from suppliers and buyers the factoring still is engaged in the constant control over indebtedness of buyers, gives to the supplier the information on an indebtedness condition, delivery periods, and also leads complete archive and the analysis of all material operations.
The factoring agreement means the following scheme of work:
At first the client and the factoring organization constitute and conclude the factoring agreement. The second stage includes an estimation of debtors of the client which indebtedness is planned to receive. As the result of estimation at factoring company appears a limit established on clients and debtors. The following stage of cooperation includes acceptance-transfer of the account of the invoice, unprofitable and other documents. After check of documents the factoring company translates on the settlement account of the client to 90 percent of the sum of the transferred delivery. On the expiration of terms of payments the debtor performs accounting with the factoring organization.
After carrying out of the above-stated procedure the company translates the remained 10 percent on the settlement account of the client. The commission for work can be levied under the arrangement, as from 10 percent, and the separate payment check. In a case if the debtor doesn’t pay off, the factoring company begins work on debt recovery. In this case factoring process is tightened. The factoring legal basis is constituted by the international convention which has been accepted by the international institute of unification of an individual right in 1988. It is necessary to notice that the factoring agreement consists both on existing debt receivables, and on the future debts not existing yet.
Depending on a financing kind there are following forms of factoring:
Financing of indebtedness of the debtor (receivables financing)
Financing under various kinds of assets (Asset-based Lending)
ABF is based that the amount of loan depends on provision cost, in other systems of financing the analysis of a solvency of the debtor is primary. ABL this means of provision of work under various assets, since a debt receivable, and finishing fixed assets of the organization of the debtor, and in certain cases even intangible assets.
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