postheadericon Taking the Factoring Loans for the Essential Requirements

Factoring services are paid according to the rates established in the agreement of the parties, which, by their economic content, are the interest for the loan and the commission for intermediary transactions. The payment for factoring services differs by a great differentiation in different regions. For example, in January 1992, it varied from 1.5 to 36 percent per annum. In the Northwest, payments varied from 15 to 20 percent; in the country it was 15 to 23 percent.

In addition, factoring has the right to receive from the buyer the amount of financial sanctions if the payment is made in violation of the established terms.

Factoring can be open and closed

Open factoring is a form of factoring service in which the payer is notified that the supplier assigns the right to receive money to the factoring department of the bank, which is indicated in the settlement documents as the recipient of money from the buyer. For the factoring loans this is an essential part.

Closed factoring received its name due to the fact that it serves as a hidden source of funds for lending to suppliers of goods, since none of the client’s counterparties is aware of the assignment of invoices to the factoring department of the bank. In this case, the payer conducts settlements with the supplier himself, who after receiving the payment must transfer the received money to the factoring department of the bank.

Proper Connections and Processes

The relationship between the factoring department and the supplier for the operations is regulated by the contract. The agreement provides for the conditions for performing credit and settlement operations: details of payment documents; remuneration to the department from the amount of factoring operations; the amount of compensation; terms of termination of the factoring contract and other conditions at the discretion of the parties.

The best factoring Options

Taking into account the high risk of factoring questions, the department decides to enter into a service contract only after studying the financial condition of the prospective client and his prospects. In particular, the following issues are considered:

  • provision with own working capital;
  • availability of demand for products produced by the supplier; the quality of the services and works performed;
  • the rate of growth in production and the sustainability of their prospects;
  • the level of qualification of the management personnel of the firm;
  • state of internal control;
  • terms of trade with counterparties;
  • Solvency of potential debtors.

If all participants in a factoring operation (supplier, buyer, bank) are legal entities of Russia, then this factoring is called internal. If one of the parties is a legal entity of another country, the factoring is called external.

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