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Factoring, Forfaiting and Leasing as Nontraditional Forms of Foreign Trade Financing FEM, MPA 2nd year, 2007/2008 Martina Horňáčeková Andrea Králiková Factoring The way of financing short-term claims (14-180 days) An attractive alternative to raising equity for small innovative fast-growing firms 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. 2 kinds of factoring Domestic Exporting Types of factoring Real factoring Unreal factoring Full factoring Confidential factoring Silent factoring Obvious factoring Exporting factoring 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 Functions Financing function Function of providing services Insurance function Cash function 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 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 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 to use forfaiting in home trade as well 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 forfaiting – bigger risk than factoring – each claim is carefully considered (credibility of the debtor, country, maturity date, form of assurance, awaited evolution of interest rates, political situation...) the price is set by banks individually set for legal entities Advantages of forfaiting it influences cash-flow of the exporter positively foreign claims – only in stable currencies simple documentation and administration of business case individual consideration of each claim taking over the risk (economic risk, risk of the country, political risk, currency risk) by the forfaiter Differencies FORFAITING FACTORING long-term claims short-term claims a claim must come into a claim can be purchased existence at first, then it before its existence is purchased block of claims is single claims are purchased purchased a guarantee is seldom a guarantee is required required no additional servicies additional servicies connected with a claim connected with a claim are provided are provided Leasing lease = hire, lend Special form of getting and financing goods Fixed regular payments 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 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 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 Two types of leasing contracts Financial long-term lease Operative short-term lease The property The leased article rights gains the remains in leaseholder after property of the finishing the lease person leasing it Advantages For the leaseholder For the leaser No loan conditions No investment restrictions It covers almost 100% of costs Provides yields in cash Enables diversification of business risk Can get back the article when the leaseholder does not fulfil the agreed conditions Tax regulations Thank you for the attention