What is a Factoring Arrangement?

Factoring, the full name of insurance agent, also known as collection insurance, is a financial term that refers to the seller's current or future transfer of receivables based on the sales / service contract of the goods with the buyer For factoring (financial institutions that provide factoring services), a comprehensive financial service approach that provides a series of services such as financial communication, buyer credit evaluation, sales account management, credit risk guarantee, and account collection.

Factoring

Factoring, the full name of the insurance agent, also known as collection

Factoring business is divided into international factoring and domestic factoring. The domestic factoring is based on the development of international factoring. International factoring is also called international payment factoring or payment agent. It refers to a comprehensive financial services business in which factorers provide credit insurance or bad debt guarantees, collection or management of receivables, and at least two types of trade financing to exporters through the acquisition of creditor's rights. Its core content is through acquisitions. Debts provide export financing. Unlike international factoring, domestic factoring, factoring applicants, and business contract buyers are domestic institutions.

Factoring, also known as insurance agent and collection insurance, is a method used by exporters in order to avoid the risk of collection when the loan is settled by collection and credit sales in trade. practice. Factoring business is a comprehensive financial service that integrates trade financing, commercial credit investigation, accounts receivable management and credit risk undertaking. Compared with traditional settlement methods, factoring's advantage lies mainly in its financing function. Factorers provide them with at least two of the following services:

Trade finance

Based on the seller's funding requirements, the factorer can provide financing to the seller immediately after receiving the transferred receivables to assist the seller to solve the problem of liquidity shortage.

Sales account management

According to the requirements of the seller, the factorer can regularly provide the seller with the collection of receivables, overdue accounts, aging analysis, etc., and send various types of

The international factoring business operates in two ways: single factoring and dual factoring. A factoring method involving only one importer and exporter is called a single factoring method; a factoring factor involving both parties is called a dual factoring method. Single factoring is that only the export bank signs a factoring agreement with the exporter and undertakes factoring for the receivables of the exporter. Double factoring is that the Export-Import Bank signs a factoring agreement with the importer and exporter.

As a relatively new method of international trade settlement, factoring has a history of more than ten years, and it has gradually matured and been adopted by more exporters. It is mainly aimed at the increasingly fierce market competition and the buyer's payment conditions are more stringent, such as D / A forward, and even credit sales. A financial service product (like insurance is also called a product) resulting from a demand such as risk. But to do factoring is conditional, that is, the following issues need to be paid attention to:

1. The buyer (importer) must have a good reputation or credit so that the import factor can verify a certain credit limit for it, otherwise it will not be acceptable.

2. Before continuing to do factoring business, a lot of these tasks such as application, credit evaluation, and approval of credit limit are to be done before the export contract is formally signed.

3. Only when the export factorer agrees with the exporter to do the factoring business, that is, after the export factorner has approved the credit line for the importer, can it formally sign the foreign trade contract or ship the goods.

4. Pay attention to the use of the credit line of the importer (balance status), and changes in its credit status. Maintain effective communication with export factorers at all times.

5. Don't break through the approved credit line.

6. If financing is needed, you need to know the interest rate in advance.

7. Another important issue that should be paid attention to when using factoring services is to understand the level of factoring expenses. To the best of our knowledge, this is a major reason why factoring is not widely adopted.