Question

Are “Factoring”, “Forfeiting” and “Confirming” different? Yes/No. If yes, briefly explain how as they relate to the payment procedure.

Answer 1

Factoring

Factoring – otherwise called receipt factoring or records receivable financing – is the procedure where organizations get propels against their records receivables. There are three gatherings with regards to factoring: the account holder (purchaser of products), the customer (vender of the merchandise), and the factor (the lender). This sort of financing is regularly used to oversee book obligation.

Forfeiting

Forfeiting is a financing alternative exporters use to get prompt money. How it functions: The exporter sells its case on medium and long haul exchange receivables to a relinquish er at a limited rate to get quick access to money. The advantage: Exporters limit the danger of factoring by selling without plan of action, which implies the exporter isn't at risk when the merchant neglects to pay the receivables.

Confirming

account offered to provider by money related substance, empowering organization to pay at term and provider to gather on conveyance. The term 'confirming' was instituted by the Spanish banks and isn't to be mistaken for affirmation of letters of credit (see exchange account segment).

Subtleties of installments to certain concurred providers are given to the bank, who will mastermind to pay the provider at the due date. Simultaneously, the bank will impart to the provider that they are dealing with installment, and offer to limit the installment in advance at a concurred loan fee. On the off chance that the provider acknowledges, he restores the consented to arrangement and gets the limited assets right away.

This sort of financing might hold any importance with organizations who ordinarily pay providers on expanded footing of 60 days or over

FACTORING PROCESS. The vender offers the products to the purchaser and raises the receipt on the client.

The vender at that point presents the receipt to the factor for subsidizing. The factor confirms the receipt.

After confirmation, the factor pays 75 to 80 percent to the customer/dealer.

The factor at that point trusts that the client will make the installment to him.

On getting the installment from the client, the factor pays the rest of the sum to the customer.

Expenses charged by factor or intrigue charged by a factor might be forthright for example ahead of time or it might be falling behind financially. It relies on the kind of factoring understanding.

In the event of non – plan of action factoring administrations factor bears the danger of awful obligation so all things considered factoring commission rate would be relatively higher.

The pace of factoring commission, factor save, the pace of intrigue, every one of them is debatable. These are chosen relying on the monetary circumstance of the customer   

Forgieiting PROCESS. In a forfaiting transaction, the exporter gives up his privileges to guarantee for installment on merchandise conveyed to a shipper, as an end-result of quick money installment from a forfaiting Agency. Therefore, an exporter can change over a credit deal into a money deal, with no plan of action either to him or his investor.. Procedure subtleties:

1. Exporter starts arrangements with forthcoming abroad purchaser, finishes the agreement and the merchant opens a LC through his Bank for the vender (exporter).

2. Exporter Ships the merchandise according to the calendar concurred with the purchaser. 3. The exporter draws a progression of bills of trade and sends them alongside the delivery records, to his investor for introduction to shipper for acknowledgment through last's bank. Bank returns avalised and acknowledged bills of trade to his customer (the exporter).

4. Exporter advises the Importers Bank about task of continues of transaction to the Forfaiting bank.

5. Exporter embraces avalised Bill of Exchange (BOE) with the words "Without re­course" and advances them to the Forfaiting Agency (FA) through his bank.

6. The FA impacts installments of limited an incentive in the wake of checking the Aval's signature and different specifics.

7. Exporter's Bank credits Exporter's a/c.