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

FEM, MPA Martina HorňáčekováFEM, MPA Martina Horňáčeková

2nd year, Andrea Králiková2nd year, Andrea Králiková

2007/20082007/2008

FactoringFactoring

The way of financing short-term The way of financing short-term claims (14-180 days)claims (14-180 days)

An attractive alternative to raising An attractive alternative to raising equity for small equity for small innovativeinnovative

fast-growing firms 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 factoring2 kinds of factoring

Domestic Exporting

Types of factoringTypes of factoring

Real factoring Unreal factoring Full factoring Confidential factoring Silent factoring Obvious factoring Exporting factoring

AdvantagesAdvantages» 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

FunctionsFunctions

Financing function Function of providing services Insurance function Cash function

Who is the appropriate Who is the appropriate addept for factoring?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

ForfaitingForfaiting 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 forfaitigEvolution 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 forfaitingAdvantages 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

DifferenciesDifferenciesFORFAITING 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 servicies

connected 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

LeasingLeasing lease = hire, lend

Special form of getting and financing goods

Fixed regular payments

When doing a leasing contractWhen doing a leasing contract

Two parties: the person who leases Two parties: the person who leases (leaser) and leaseholder(leaser) and leaseholder

4 categories of leaser:4 categories of leaser:Leasing companiesLeasing companiesBanks and financial institutionsBanks and financial institutionsBranches of goods producersBranches of goods producersCombined firmsCombined firms

The principalThe 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 historyThe 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 contractsTwo types of leasing contracts

Financial

long-term lease

The property rights gains the leaseholder after finishing the lease

Operative

short-term lease

The leased article remains in property of the person leasing it

AdvantagesAdvantagesFor the leaseholder

No loan conditionsNo investment

restrictions It covers almost 100%

of costsProvides 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

Thank youThank you

for the attentionfor the attention