Factoring represents a contemporary commercial business in the form of a short term financing of the Adherent / Exporter based on bought non-matured receivables resulting from the underlying contract between the Adherent and its debtor / buyer for invoiced and delivered goods.
Business operations that the Factor-AOFI carries out for the Adherent:
- Provision of liquid assets by advance payment effected immediately after submission of the documentation and after signed contract on certain percentage;
- Receivables records management / keeping. The AOFI keeps records of all transactions based on assigned receivables in accounting sheets, updating them and notifying the Adherent / Exporter on all occurring changes;
- Collection of Receivables; and
- Collection risk take-over, in cooperation with Insurance Sector, which enables the Client / Exporter to have collection certainty.
Types of factoring business:
The AOFI carries out for its clients the international – export factoring and internal factoring business i.e. factoring business at the domestic market with subsidy rights for the Exporters.
Who are the factoring clients?
- All export-oriented companies generating an annual turnover of EUR 300,000.00, irrelevant of the company size, and having good multiannual programs and high quality buyers / debtors, which, on the other hand, do not have sufficient current assets to finance longer collection periods;
- Small and medium companies (SMC) doing business with large international systems, which have neither sufficient human resources nor financial power for additional indebtedness at the financial market;
- Companies taking account of its own solvency by increasing the speed and quality of collection, and of current assets for further investments, simultaneously reducing the collection costs and possible losses;
- Companies offering goods with unscheduled payment date or with deferred payment, or companies starting business with new buyers / debtors.
Advantages of factoring:
- Solvency – More rapid receivables collection is ensured and the necessary funds for payment of one’s own liabilities and financing of the production are provided by advance payments;
- Safety – Receivables that are subject matter of factoring can be “covered” by a credit insurance policy from non-payment due to insolvency of the debtor / buyer;
- Creditworthiness increase – Image of the financial standing of the Adherent / Client is improved because the balance is not burdened by short term liabilities like in the event of a loan so that it does not reduce the credit potential with commercial banks;
- Competitiveness – Competitive position is improved both with buyers and suppliers, which enables the Adherent / Client to offer longer payment terms and sale of the goods with unscheduled payment date.
Realization of factoring business and costs:
In order a factoring deal to be carried out, the following is necessary:
- The Adherent should fill in the required documentation:
- Questionnaire with basic particulars of the Adherent and
- Factoring application for particular Debtors / Buyers – Application for international / domestic factoring with insurance
- Upon the submission of specified documentation AOFI shall analyze the financial standing of the said Debtors from the Adherent’s application after which an indicative offer with a list of Acceptable Debtors shall be provided. Together with the indicative offer the Adherent shell be provided with a bill for ordered financial standing reports on Debtors, according to AOFI tariff.
- After the acceptance of the indicative offer, a proposal is prepared for AOFI’s Executive Board. After the positive decision of the Executive Board, Factoring Contract signing procedure is initiated.
After the Contract is signed and after the delivery of goods to the Debtors specified in the Factoring Contract, buying of receivables shall be initiated: - The Adherent, after the customs clearing of the goods i.e. delivery of the goods to the Debtor, hands over the required documentation on the particular delivery (Single Administrative Document, CMR, invoice, consignment note, signed statement of assignment).
The Statement of Assignment is a trilaterally signed document by which the Adherent notifies its Debtor that he had sold respective receivables, and the Debtor gives approval to his payment into AOFI’s account, on Adherent’s order, while AOFI / Factor agrees to receive the funds.
AOFI, after checking complete submitted documentation, effects advance payment in amount up to 90%of the nominal receivables value reduced by the following costs:- Factoring commission calculated on total value of the assigned receivables – delivery;
- Interest, in case of advance payment, for the duration of the factoring financing period.
- AOFI shall pay the remaining amount of 10% to the Adherent / Exporter after the final Debtor’s payment to AOFI. If stipulated by the Contract, the rest of this amount AOFI may use for settling the Adherent’s due liabilities.
Factoring price primarily depends on the following:
- Planned volume of sales / export that shall be assigned for collection to the Factor,
- Payment due date,
- Risk – which depends on the fact whether AOFI takes over the collection risk,
- Financial standing of the Adherent / Exporter and Debtor as well as
- Country risk of the export destination.
