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Factoring, Forfaiting and Leasing as Nontraditional Forms of Foreign Trade Financing

Factoring, Forfaiting and Leasing as Nontraditional Forms of Foreign Trade Financing. FEM, MPA Martina Horňáčeková 2nd year, Andrea Králiková 2007/2008. Factoring. The way of financing short-term claims (14-180 days)

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Factoring, Forfaiting and Leasing as Nontraditional Forms of Foreign Trade Financing

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  1. Factoring, Forfaiting and Leasing as Nontraditional Forms of Foreign Trade Financing FEM, MPA Martina Horňáčeková 2nd year, Andrea Králiková 2007/2008

  2. Factoring • The way of financing short-term claims (14-180 days) • An attractive alternative to raising equity for small innovative fast-growing firms

  3. The three parties directly involved are: the seller, debtor, and the factor. • The seller is owed money (usually for work performed or goods sold) by the second party, the debtor. • The seller then sells one or more of its claims at a discount to the third party, the specialized financial organization (the factor) to obtain cash. The debtor then directly pays the factor the full value of the claim.

  4. 2 kinds of factoring • Domestic • Exporting

  5. Types of factoring • Real factoring • Unreal factoring • Full factoring • Confidential factoring • Silent factoring • Obvious factoring • Exporting factoring

  6. Advantages • The factor carries the risk of not paying the obligation • The businessman does not have administrative duties, e.g. evidence of claims • Financial covering of seasonal costs, e.g. seasonal selling, advertising or company's expansion • Getting better conditions thanks to the faster paying of supplier

  7. Functions • Financing function • Function of providing services • Insurance function • Cash function

  8. Who is the appropriate addept for factoring? Firms and bussinessmen • always the same customers • the cooperation lasts at least one year • you regularly supplies at least three customers • your supplies are highly seasonable • your company can not finance the orders itself

  9. Forfaiting • flexible opportunity of financing • purchasing long-term and middle-term claims (1-10 years) by bank or forfaiting institution • claims are connected with export of goods and services without back affect of the supplier

  10. purchaser of a claim = FORFAITER (usually bank or forfaiting institution) • min. value of the claim – 1 000 000 SKK • claims connected with investment activity – export of machines, means of transport, equipment... • mostly used by exporters who need cash instead of the claim • possible touse forfaiting in home trade as well

  11. Evolution of forfaitig • started in 50´s – 60´s of 20th century in Switzerland • 70´s- the 1st contact with the Slovak banking system • 90´s – forfating in Slovakia in fully range • ČSOB • in Slovakia – claims usually connected with international trade

  12. forfaiting – bigger risk than factoring – eachclaimiscarefullyconsidered (credibility of thedebtor, country, maturity date, form ofassurance, awaited evolution of interest rates,political situation...) • the price is set by banksindividually • set for legal entities

  13. Advantages of forfaiting • it influences cash-flow of the exporterpositively • foreign claims – only in stable currencies • simple documentation and administration of businesscase • individual consideration of each claim • taking over the risk (economic risk, risk of the country, political risk, currency risk) by the forfaiter

  14. FORFAITING long-term claims a claim must come into existence at first, then it is purchased single claims are purchased a guarantee is required no additional serviciesconnected with a claim are provided FACTORING short-term claims a claim can be purchased before its existence block of claims is purchased a guarantee is seldom required additional servicies connected with a claim are provided Differencies

  15. Leasing  lease = hire, lend • Special form of getting and financing goods • Fixed regular payments

  16. When doing a leasing contract • Two parties: the person who leases (leaser) and leaseholder • 4 categories of leaser: • Leasing companies • Banks and financial institutions • Branches of goods producers • Combined firms

  17. The principal • The leaser leases the leaseholder a certain article for using while the leaser remains the owner of the article, or the rights are taken over by the leaseholder

  18. The history • 1877 - American company Bell Telephone Company decided not to sell but hire the telephones • 1952 - the first leasing company in USA • At the beginning in car business

  19. Financial long-term lease The property rights gains the leaseholder after finishing the lease Operative short-term lease The leasedarticle remains in property of the person leasing it Two types of leasing contracts

  20. For the leaseholder No loan conditions No investment restrictions It covers almost 100% of costs Provides yields in cash For the leaser Enables diversification of business risk Can get back the article when the leaseholder does not fulfil the agreed conditions Tax regulations Advantages

  21. Thank you for the attention

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