FACTORING AND FORFAITING. FACTORING AND FORFAITING. Factoring is of recent origin in Indian Context. Kalyana Sundaram Committee recommended introduction of factoring in 1989. Banking Regulation Act, 1949, was amended in 1991 for Banks setting up factoring services.
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Factoring is of recent origin in Indian Context.
Kalyana Sundaram Committee recommended introduction of factoring in 1989.
Banking Regulation Act, 1949, was amended in 1991 for Banks setting up factoring services.
SBI/Canara Bank have set up their Factoring Subsidiaries:-
RBI has permitted Banks to undertake factoring services through subsidiaries.
Factoring is the Sale of Book Debts by a firm (Client) to a financial institution
(Factor) on the understanding that the Factor will pay for the Book Debts as
and when they are collected or on a guaranteed payment date. Normally, the
Factor makes a part payment (usually upto 80%) immediately after the debts
are purchased thereby providing immediate liquidity to the Client.
PROCESS OF FACTORING
The parties involved in the factoring transaction are:-
b) Export Factor,
c) Import Factor, and
Bill is separately examined and discounted.
Financial Institution does not have responsibility of Sales Ledger Administration and collection of Debts.
No notice of assignment provided to customers of the Client.
Pre-payment made against all unpaid and not due invoices purchased by Factor.
Factor has responsibility of Sales Ledger Administration and collection of Debts.
Notice of assignment is provided to customers of the Client.FACTORING vs BILLS DISCOUNTING
Bills discounting is usually done with recourse.
Financial Institution can get the bills re-discounted before they mature for payment.
Factoring can be done without or without recourse to client. In India, it is done with recourse.
Factor cannot re-discount the receivable purchased under advanced factoring arrangement.FACTORING vs BILLS DISCOUNTING (contd…)
“Forfait” is derived from French word ‘A Forfait’ which means surrender of fights.
Forefaiting is a mechanism by which the right for export receivables of an exporter (Client) is purchased by a Financial Intermediary (Forfaiter) without recourse to him.
It is different from International Factoring in as much as it deals with receivables relating to deferred payment exports, while Factoring deals with short term receivables.
HELD TILL MATURITY
SELL TO GROUPS OF INVESTORS
TRADE IN SECONDARY MARKET