Factoring is a form of credit extension to the seller through the acquisition of receivables arising from the purchase and sale of goods agreed upon by the seller and the buyer in the sale contract.
What is factoring?
Factoring is a form of credit extension applied by credit institutions (CIs) to enterprises being sellers through the acquisition of receivables arising from the purchase and sale of goods already sold by the seller. and the buyer agrees in the goods purchase and sale contract.
Credit institutions, as factoring company, will assist enterprises in supplementing working capital to promote trade activities, including domestic and international trade, characterized by recourse, accounts receivable and factoring balance.
Factoring has the right to recourse: It is the right to reclaim the advanced amount to the seller when the buyer fails to fulfill or fails to fulfill the payment obligations of the receivables received by the credit institution. maths.
Receivables: is the amount of money that the seller must collect from the buyer in the time periods specified in the contract of sale of goods
Factoring balance: The amount that a credit institution advances to a seller that has not been paid by the purchaser.
Types of factoring
Factoring is a fact that the factoring unit repurchases the right to recourse of receivables from the customer (the seller) through the advance of the money to receive related legal rights and benefits. to receivables as agreed.
Buyer factoring means that a redundant factoring unit retains the right to recourse of accounts payable from the customer (the purchaser) by making advances to the seller and being refunded by the customer. advance payments, interest and fees as agreed.
Domestic factoring is factoring based on a contract of purchase, sale of goods or provision of services. In particular, the seller and the buyer are residents.
International factoring means factoring based on a contract of purchase, sale of goods or provision of services between the exporter and importer, of which one party is a resident and one party is a non-resident.
What types of factoring are available?
For each receivable, the CI signs a credit contract with the seller.
Factoring by limit
The CI provides the seller with a factoring balance for a specified period of time and at any time within the limit of the limit, the total factoring balance with the seller must not exceed this balance. . For each advance payment, the seller only needs to sign with the debtor’s credit agreement (debt receipt).
Credit institutions jointly perform factoring for a contract of goods purchase and sale, of which one CI is the focal point for the factoring companies.
Features and benefits of factoring service
For the seller / exporter:
Increase your competitiveness with flexible payment methods
Guaranteed credit risk buyers 100% of the invoice value
Knowing exactly the creditworthiness and actual financial capability of the buyer (especially for foreign buyers)
Save time and money in managing and recovering receivables.
Do not pay any factoring fees
It takes no time to open a letter of credit for each import, no deposit
Receive and use the goods without having to pay immediately
Only pay when the goods meet the requirements of the contract
Flexible payment mechanism (in local or foreign currencies).
Step 1: Verify the application file and sign the factoring contract
In this step the work should proceed as follows
Seller signs commercial contract with buyer
Seller processes the application for factoring funding
The factoring application form follows the form and sends it to a commercial bank or a trusted financial company
Relevant documents with related explanations such as: Commercial contract, name and address of the related parties
Sponsorship evaluation: After receiving the customer’s file, the commercial bank or finance company shall conduct the appraisal according to the following content.
Appraisal of buyers (Situation of business results, financial status, prestige in transaction relations….)
Assess the situation of the seller (Feasibility, Stability …)
When the factoring contract has been safely evaluated, the above-said enterprises shall sign the factoring contract. In which the factor is a commercial bank or a financial company (sponsor) or seller (sponsored party).
Step 2: The seller performs a commercial contract
The seller proceeds to send the goods to the buyer according to the terms and conditions of the contract signed with the buyer.
Step 3: The seller submits a set of documents applying for factoring funding
The seller makes an invoice and submits it directly to the factor.
Attached documents of debt transfer (transfer of benefits) to the factor.
Only debts with a term of no more than six months are factored.