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Forfaiting is the essence of a special scheme for financing enterprises.

For businessmen, manufacturers and suppliers to improve all business processes financial institutions offer factoring or forfaiting. In the first case, the goods are sold on deferred payment terms. In this case, the supplier transfers the rights to receive the debt to the factoring company. In this case, the factor itself receives first 90% of the amount of the buyer’s debt, and after repayment of the debt another 10%.

Forfaiting means an operation where the forfaiter acquires an obligation from a company with a debt to the creditor. In this case, the intermediary takes upon himself various risks, if desired, always has the opportunity to sell his debt. At the same time, from the period of redemption of the obligation, the client receives all funds at once and is not responsible if the buyer is unable to pay within the terms specified in the contract.

Thus, factoring can last up to 180 days, and forfeiting can last for several years. In the first case, responsibility for non-payment by the buyer lies with all parties, in the second - only with the forfaiter.

Similarities and differences between factoring and forfeiting

Comparative characteristics of factoring and forfeiting:

	Forfaiting	Factoring
Duration	Can reach up to 10 years or more	The debt can be no more than 6 months
	The merger of forfaitors into a Consortium is being practiced	Limited by the capabilities of one agent
Business segment		Small and medium
	Frees its client from risks	Even in a situation where the agent’s right of recourse is waived, political and currency risks remain with the client
	Not provided	Recourse conditions are specified in the contract
Debt distribution	Full amount is paid	90% is paid first, the rest comes after the debt is paid off
Properties of an assigned obligation	The purposes are not limited to trade, so it is possible to use a financial bill	Monetary requirements specified in the contract
Assignment of debt	Possible	Not provided

Each of these types of transactions has its own merits. For example, with forfeiting there is no recourse; the balance sheet structure is optimized by reducing debt. The client has the opportunity to save a significant amount on bank loans.

Forfeiting and factoring differ from leasing. The latter can be designed for medium- and long-term financing. The object of the transaction is fixed assets. While factoring deals with receivables, forfaiting deals with debt obligations. When leasing, the operator’s guarantee is the right of ownership of the leased object. As with forfeiting, recourse to the supplier is impossible, since it contradicts the nature of the transaction itself.

Leasing, factoring, forfeiting have different risks (liquidity, currency, credit):

The lessor assumes them. The leased object may be withdrawn to secure obligations.
The factor takes over, but the supplier's recourse is possible.
Forfaiter. Accepts, but requires a guarantee from the importing bank.

In conclusion, we note that the differences do not end there; for example, in factoring the object for the operation is an invoice, and in forfeiting it is a bill of exchange. In the first case, a third party’s guarantee is required, and in the second, his guarantee is required. At the same time, both methods are unique and in demand in the economies of developed countries.

The instruments of international trade are developed and extremely diverse. Schemes developed over decades (and sometimes centuries) allow us to solve a variety of problems in financing businesses conducted by Russian companies with foreign partners.

Some services in Russian Federation haven't received it yet widespread, although they deserve careful consideration.

One of such mechanisms of foreign economic activity, used to obtain medium- and long-term loans, is Forfeiting.

Description of the factoring operation

Forfaiting (from the French and forfai - the total amount, in full) is essentially another form of lending to participants in foreign trade activities, carried out through the repurchase of debt securities issued to cover the debt incurred between them in the process of trade.

Transaction participants:

Exporter– a seller, supplier of goods, works or services, assigning (reselling) his right to claim the Importer’s delivery debt.
Importer– a buyer who purchases goods, works or services on credit.
Forfaitor– Bank or other financial agent. Buys commercial debt obligations of the Importer to the Exporter. This debt is most often in the form of a medium- or long-term debt security.

Forfeiting is most suitable for transactions of purchase and sale of expensive equipment, machinery or machinery of foreign manufacture.

Similar contracts are concluded for medium and long terms and their average sum is usually of the order of eq. 1-2 million US dollars.

Particularly large transactions can be financed by Forfaiter Consortiums - an association of several companies, each of which does not want (or cannot) bear the required amount of risk alone.

Scheme

For clarity, let’s look at the forfeiting mechanism using an example.

A standard forfeiting transaction looks like this::

The Exporter (“John Deere, Inc.”) and the Importer (Khleborob LLC) agree on the terms of the Contract for the purchase and sale of equipment, machinery or equipment (10 combine harvesters and 5 cultivators): their cost (USD 3.5 million ), the procedure for payment and transfer, and other significant conditions.
John Deere, Inc. is looking for an Agent Bank (Forfaiter, or a group of Forfaiters to create a consortium - to finance particularly large trade transactions).
An agreement was reached with the European bank “The First International Bank” (“FIB”).
Khleborob LLC draws up a Bill of Exchange (a series of bills of exchange - if delivery will be carried out in parts) and finds a Bank (Guarantor or Avalista) that guarantees (or avalizes) these Bills of Exchange.
In our example, VTB Bank
Sending to the bank "FIB" (Forfeiter) bills of exchange avalized by the bank "VBT".
Supply of agricultural equipment to Khleborob LLC.
Provision of promissory notes issued by Khleborob LLC to the supplier John Deere, Inc.
Sale of a bill of exchange (transfer by endorsement) by the Exporter (“John Deere, Inc.”) to the Forfaiter (“FIB”).
John Deere, Inc. receives the agreed amount from the sale of the Notes (95% of US$3.5 million).

Pair important points: The Guarantor/Avalist must be recognized by the Forfaiter as sufficiently reliable and the terms of the Promissory Note (and the guarantees thereon) must be no less than the forfeiting period.

Typically, the value of the Note is discounted - i.e., purchased somewhat cheaper than the original price - as a payment for Forfaiter's long-term risks. The amount of the agency fee depends on the period, residence of the participants, other nuances and in practice does not exceed 1.5%.

Key points of the agreement

Contract currency- must be freely convertible.
Jurisdiction- must be specified separately.
Confidentiality. The existence of the right to disclose the terms of the transaction is important for Forfaiter’s possible resale of debt securities at secondary market.

Do not skimp on the services of a competent international lawyer - when analyzing the Forfeiting Agreement, one is really needed.

Forfaiting and Factoring: what is the difference

The main differences between these two financial instruments are outlined in the table:

	Forfaiting	Factoring
Duration of financing	Medium and long-term debt – up to several years (7-10)	Short-term debt – up to six months
Transaction scale	It is possible to unite Forfaitors into a Consortium	Limited by the capabilities of 1 Factor.
Business segment	In demand by big business	In demand by small and medium segment companies
Degree of risk acceptance by the financial agent	Exemption from the risks of the Seller of the debt (Exporter) is complete: all political, currency, and other risks fall on the Forfaiter	Even if the Factor waives the right of recourse, the Exporter bears the political and currency risks
Possibility of recourse	No regression provided	Recourse may be provided for by the terms of the contract
The main document “materializing” the debt	Debt security - promissory note, promissory note or transferable	Confirmation of delivery (invoice, cargo customs document, acceptance certificate.)
The part of the debt that is redeemed	The forfaiter pays the entire amount of the debt (with an agreed discount)	Up to 90% of the amount of trade debt (according to the invoice) is advanced. The remaining 10% is credited to the Seller’s account after the Buyer has fully transferred the trade debt (after deducting the cost of the Factor’s services)
Additional services	Servicing relations with debtors and collection of debts is not provided	A range of services for managing accounts receivable. Can be supplemented with legal, accounting, consulting, etc. services
Possibility of debt assignment	The forfaiter can resell the asset on the secondary market	Factoring debt is not subject to further transfer
Third party participation	We need confirmation of fulfillment of obligations by a third party (guarantee, aval)	No confirmation needed
Nature of the assigned obligation	A financial bill is possible, the purposes are not limited to trade.	Nature – a clearly monetary requirement arising in the process of commodity relations, clearly indicated in the Financing Agreement.

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INTERNATIONAL BANKING INSTITUTE

Faculty of Distance Learning

Coursework

By discipline: "Organization of the activities of a commercial bank"

On the topic: “Factoring and forfeiting as forms of lending for trade operations”

Work completed:

3rd year student

groups ZF-15 (25 FB-72)

Shakhova T.I.

Grade book no. 7891

St. Petersburg

Introduction
Chapter 1 Factoring

1.1. Factoring, its essence
1.2. Types of factoring operations
1.3. Types of Factoring Agreements
1.4. Benefits of participants in a factoring agreement

Chapter 2 Forfaiting

2.1. Forfaiting, its essence
2.2. Main directions of development of forfeiting

2.2.1. Secondary market and investments in forfeiting assets
2.2.2. Synding
2.2.3. Floating rate financing

2.3. Forfeiting market size
2.4. Stages of transaction preparation
2.5. Advantages and disadvantages of forfeiting financing

Conclusion
References
Appendix 1
Appendix 2
Appendix 3
Appendix 4

Introduction

To carry on as a going concern, both the exporter and the importer may need short-term financing without waiting for funds to flow from certain transactions. As you know, working capital is vital for the operation of trading companies. Problems with working capital can be avoided by using short-term financing instruments. Intermediary companies can offer financing if the entrepreneur has any guarantees of receiving funds from trading partners. This encourages the entrepreneur to reduce the time gap between investing and making a profit. Some of the most common forms of trade finance include factoring, forfaiting, bill discounting and financing through documentary letters of credit. In connection with the development of banking services, with the renewal of trust between the client and the bank, two current ways financing: factoring and forfeiting.

Factoring- this is an operation in which a transfer is made accounts receivable in order to increase the speed of cash turnover; reducing account maintenance costs; obtaining a debt repayment guarantee.

Forfaiting is a form of lending, formalized by negotiable documents and suitable for any commercial transactions, while the borrower is not obliged to mortgage all or a significant part of his business. Forfaiting is called a form of peculiar transformation of a commercial loan into a bank loan.

The relevance of this topic is that due to the current situation in the economy and the fact that not all enterprises have yet recovered from the crisis, many of them are experiencing difficulties in lack of working capital, bankruptcy of partners, resulting in interruptions in payment for goods supplied and services provided. Some of these problems can be solved by already recognized recent years tools - factoring, or, as domestic legislation states, financing against assignment of claims, and forfeiting.

The purpose of the course work is to identify the advantages and disadvantages of factoring and forfaiting, and the difficulties of their implementation in our country.

To achieve these goals, it is necessary to solve the following tasks:

1. In the first chapter, it is necessary to explain the concepts of factoring, give descriptions of the types and types of factoring agreements, and consider the benefits for all parties to the transaction.

2. In the second chapter, analyze the mechanism for carrying out a forfeiting transaction, analyze the directions of development of forfaiting, and determine its advantages and disadvantages.

In order to reveal the concepts of factoring and forfaiting, to identify the relevance of the use of these financial instruments in course work legislative acts of the Russian Federation, specialized literature, and data from Internet resources were used and analyzed.

Chapter 1. Factoring

1.1 Factoring, its essence

Initially, factoring, known since the 16th-17th centuries, arose as an operation of specialized trading intermediaries, and later merchant banks were included in it. But only in the 60s of our century did factor operations replace commercial loan in bill form and have become widely used to service the process of selling products. This was caused by increased inflation processes and instability in the economies of a number of countries during that period, which required faster sales of products, i.e. accelerating the transfer of capital from the commodity form to money. The bill of exchange form of payment, widely used in market economies, does not always guarantee timely receipt of funds and reimbursement of actual production costs. Therefore, the problem of accounts receivable for suppliers has become of paramount importance.

As noted above, one of the most promising types of banking services is factoring - a risky but highly profitable business, an effective tool for financial marketing, one of the forms of integration of banking operations that are most adapted to modern economic development processes. The term "factoring" from English means intermediary, agent.

Many enterprises are familiar with situations where the goods have already been shipped, but the payment for it has not yet arrived. In order not to be left without working capital, this problem can be solved by concluding a factoring agreement with the bank (Appendix 1).

Factoring is a type of financial services provided by commercial banks and their subsidiary factor firms to small and medium-sized firms. Its use ensures the constant availability of working capital to finance the current activities of the enterprise.

According to Art. 824 of the Civil Code of the Russian Federation, a factoring agreement is a financing agreement for the assignment of a monetary claim, under which:

- one party (financial agent) transfers or undertakes to transfer to the other party (client) funds in payment of a monetary claim presented by the client (creditor) to a third party (debtor) and arising from the provision by the client of goods, performance of work or provision of services to a third party;

- the other party (client) assigns or undertakes to assign this monetary claim to the financial agent.

After concluding the agreement, the bank transfers to the seller most of the debt (from 70 to 90% of the amount of the assigned claim), and the balance of funds minus the commission - after repayment of the debt.

It should be noted that in practice, not every supplier can count on factoring financing. Factors such as the age of the company, the stability of the business and, most importantly, the prospects for its development matter. Before concluding a factoring agreement, the financial agent assesses the volume of supplies and the number of debtors whose debt the organization wants to transfer for servicing. The greater the volume of financing, the higher the factor’s profit and the more profitable factoring is for the supplier.

The factoring agreement concluded by the financial agent with the supplier determines the main conditions of financing for the assignment of receivables (types of commissions and their size, conditions for providing financing). As a rule, a factoring agreement is concluded once and is automatically renewed every year.

The basis of factoring is the ongoing relationship of financing the supplier by a financial agent, i.e. regular financing as receivables arise. The supplier gets the opportunity to plan its financial flows regardless of the payment discipline of buyers, since I am confident in the receipt of funds from the bank. By providing the enterprise with real funds, factoring allows you to focus on the main production activities, helps to accelerate capital turnover, increase the share of productive capital and, accordingly, increase profitability.

When concluding a factoring agreement, the client must confirm:

- existence of a monetary claim (present an agreement concluded with the debtor; documents confirming the delivery of goods; invoices, etc.);

- the debtor’s ability to pay the debt (in this case, the composition of the supporting documents is determined by the bank).

The client or bank must provide the debtor with written notice of the assignment of the monetary claim. The document must indicate the contract number and the amount of debt, as well as the details of the bank to which payment should be transferred.

Under a factoring agreement, you can assign both existing and future rights of claim. The latter means that the goods will be shipped to the buyer in the future and the bank will have the right to demand payment of the debt at the time of shipment.

From paragraph 1 of Art. 824 and Art. 831 of the Civil Code of the Russian Federation it follows that the terms of the agreement may provide for the transfer by the financial agent of funds to the client for the assignment of a monetary claim by purchasing a monetary claim or lending funds. The form of financing determines differences in the composition of obligations arising from the financial agent, as well as differences in the reflection of factoring operations in accounting and tax accounting.

It is easier for the supplier to enter into a factoring agreement with the bank in which he has a current account. The bank has information about the status of its clients' current accounts, so it will be able to quickly make a decision on concluding an agreement and set a reasonable limit on factoring operations. In addition, by concluding a factoring agreement with “its” bank, the supplier can sometimes save money. Some banks charge relatively small commissions under such agreements because they are interested in the client and consider factoring as an additional service.

Thus, the supplier gets the opportunity to plan its financial flows regardless of the payment discipline of buyers, being confident in the unconditional receipt of funds from the bank against accepted shipping documents for deliveries with deferred payment.

1.2 Types of factoring operations

There are several classifications of dividing factoring into types.

Depending on the volume of risks transferred to the factor:

· recourse factoring. The factor acquires from the client the right to all amounts due from the debtor, however, if it is impossible to collect the amounts from the debtor in full, the client who assigned such a “bad-quality” debt is obliged to compensate the factor for the missing funds. If a surplus is received from the debtor compared to the amount due to the factor, then the surplus is returned to the client.

· non-recourse factoring - the factor acquires from the client the right to all amounts due from the debtor. If it is impossible to recover the amounts in full from the debtor, the financial agent will suffer losses. In essence, this means a complete transfer of ownership of the client’s right of claim to the debtor.

Depending on the country of location of the participants in the factoring transaction, factoring is divided into:

· internal factoring

· international factoring

Factoring is called domestic factoring if the parties to the purchase and sale agreement are located within the same country. Internal factoring transactions typically involve three parties: the Supplier, the Buyer and the Factor.

If the Supplier and Buyer are residents different states, That we're talking about about international factoring.

Factoring can be open (with notification of the debtor about the assignment) and closed (without notification). It can also be real (a monetary claim exists at the time of signing the contract) and consensual (a monetary claim will arise in the future). With the participation of one Factor in a transaction, factoring is called direct, and if there are two Factors, it is called reciprocal.

1.3 Types of factoring agreements

Depending on the various requirements of the supplier and the factoring company, a number of options for internal factoring agreements have been developed.

Agreement on full service(open factoring without recourse) is usually concluded with constant and fairly long-term contacts between the supplier and the factoring company. Full service includes: complete protection against doubtful debts and ensuring a guaranteed cash flow; credit management; sales accounting; lending in the form of advance payment (at the request of the supplier) or payment of the amount of assigned debt claims (minus costs) by a certain date. factoring forfeiting transaction financing

With rare exceptions, full service is provided on the condition that the supplier assigns the debts of all its clients to the factoring company. From the company's point of view, this will eliminate the possibility of discrimination against it, since otherwise the supplier may assign to it only those debt claims that are difficult to collect or for which the maximum credit risk. Such a system is also beneficial for the supplier - he will not have to keep records and carry out transactions on separate, non-assigned debt claims. Thus, this condition optimal for both parties.

Full Service Agreement with Recourse is distinguished from such non-recourse by the fact that the factoring company does not insure the credit risk that continues to be borne by the deliverer. This means that the company has the right to return debt claims to the supplier for any amount not paid by customers within a certain period (usually within 90 days of the due date for payment).

A type of full service factoring agreement is, agency agreement or wholesale factoring agreement (aboutTindoor). An enterprise can establish its own effective system accounting and credit management, however, it will need protection from credit risks and lending. In this case, the factoring company may offer to enter into an agency factoring agreement, according to which it will purchase outstanding debt claims, and the supplier will act as its agent for their collection. The inscription on the invoice will notify of the participation of a factoring company in the transaction, but instead of an instruction to make a payment in favor of the latter, it will be stipulated that the payment must be made in the name of the supplier acting as its agent, but in favor of the factoring company. The advantage of this arrangement is that the factoring company's credit assessment costs and therefore the fee charged to the supplier are reduced.

Lending under this agreement is similar to lending under a full service agreement. However, the remaining balance is paid only after the clients have paid off their debts. Since the factoring company in this case does not have a direct impact on the collection process, it cannot guarantee payment by a certain date.

If the supplier is only interested in lending from the factoring company, then an open or confidential agreement can be concluded on the accounting (discounting) of invoices. Concluding an agreement of this kind is quite risky for a factoring company, which in this case puts forward the most stringent requirements for the supplier, and takes place only if the latter’s financial position is sufficiently strong.

1.4 Benefits of participants in a factoring agreement

Factoring is beneficial for both the supplier, the buyer, and the factor. With it, the supplier can do the following:

increase sales volume, the number of buyers and competitiveness by providing buyers with preferential terms for payment for goods (deferment) under a reliable guarantee;

receive a loan of up to 90% of the cost of the supplied goods, which will speed up the turnover of funds.

Focus directly on product production.

Avoid the risk of non-payments.

The buyer can:

obtain a trade credit (the seller delivers the goods with a deferred payment guarantee for an average of 3 months);

avoid the risk of receiving low-quality goods;

increase the volume of purchases;

improve competitiveness, accelerate the turnover of funds.

The factor acquires:

loan interest;

commission.

The ability to attract distributors and manufacturers to provide services, thereby attracting new capital.

Thus, we can highlight the main economic advantages of factoring as a special form of lending:

increasing liquidity, profitability and profits;

converting accounts receivable into cash;

the opportunity to receive a discount on immediate payment of all supplier invoices;

independence and freedom from meeting payment deadlines on the part of debtors;

possibility of expanding turnover volumes;

increasing profitability;

saving equity capital;

improved financial planning;

reducing the risk of non-payment.

Factoring is a risky but highly profitable type of lending, an effective tool for financial marketing, and one of the forms of integration of banking operations that are most adapted to modern processes of development of the world economy.

Chapter 2. Forfaiting

2.1 Forfaiting, its essence

Forfaiting arose after the Second World War. Several banks in Zurich, which had extensive experience in financing international trade, began to use this technique to finance grain purchases by countries Western Europe in the USA. In those years, product supplies and competition between suppliers increased so much that buyers demanded an increase in the terms of the credit provided to 180 days versus the usual 90. In addition, there was a change in the structure of world trade in favor of expensive goods with a relatively long production period. Thus, the role of credit in the development of international economic exchange increased, and suppliers were forced to look for new methods of financing their transactions. As barriers fell in international trade and many African, Asian, and Latin American countries became more active in world markets, Western European entrepreneurs found it increasingly difficult to provide loans from their own sources, which is why suppliers were forced to use new methods of financing their transactions.

Currently, one of the main centers of forfeiting is London, since the exports of many European countries have long been financed from the City, which has never been slow in mastering new banking technologies. A significant part of the forfeiting business is also concentrated in Germany.

Forfaiting has significant advantages, which makes it attractive shape medium-term financing. The main advantage of this form is that the forfaiter assumes all the risks associated with the operation. In addition, its attractiveness is increasing due to the abandonment of fixed interest rates in some countries, the chronic shortage of foreign currency in many developing countries to pay for imported goods, the growth of political risks and some other circumstances.

Forfaiting is the purchase of a debt expressed in a negotiable instrument from a creditor on a non-negotiable basis. This means that the buyer of the debt (forfaiter) assumes the obligation to refuse - forfaiting - from filing a regressive claim against the creditor if it is impossible to obtain satisfaction from the debtor. The purchase of a negotiable liability occurs, naturally, at a discount (Appendix 2).

The forfaiting mechanism is used in two types of transactions:

· in financial transactions - in order to quickly implement long-term financial obligations;

· in export transactions - to facilitate the flow of cash to the exporter who has provided a loan to a foreign buyer.

The main negotiable instruments used as forfeiting instruments are bills of exchange. However, other types of securities may also be subject to forfeiting. It is important that these papers are “clean” (containing only an abstract obligation).

The main type of forfeiting securities are bills of exchange - translational and simple. Operations with them are usually carried out quickly and simply, without unexpected complications.

In addition to bills of exchange, the object of forfaiting can be obligations in the form of a letter of credit. A letter of credit, as you know, is a settlement or monetary document that represents an order from one bank (credit institution) to another to pay for shipping documents for shipped goods at the expense of specially reserved funds or to pay the bearer of the letter of credit a certain amount money. A documentary letter of credit can be revocable or irrevocable. An irrevocable letter of credit is a firm commitment by the issuing bank to make payments upon provision of the commercial documents required by the letter of credit and compliance with all its conditions.

In Russia, letters of credit are used in settlements between out-of-town suppliers and buyers, as well as in international settlements. In world trade, documentary letters of credit are used in settlements mainly for foreign trade transactions.

Letters of credit are rarely used as an object of forfeiting. This is explained by the complexity of the operation, which consists primarily in the fact that in the case of a letter of credit, it is necessary to first and in detail agree on the terms of the transaction, which leads to an increase in the duration of the entire procedure. Meanwhile, the forfeiting market requires a high speed of concluding and completing a transaction, as well as ease of document flow.

2.2 Main directions of development of forfaiting

In recent years, the development of forfeiting services in countries with developed market economies has followed the following main directions.

2.2.1 Secondary market and investments in forfeiting assets

By purchasing assets, the forfeiter makes an investment. Perhaps he does not want to keep his funds in this form for a long time, but, on the contrary, seeks to resell the investment to another person, who also becomes a forfeiter. Based on this subsequent resale of debts, a secondary forfeiting market arises.

The forfaiter can resell part of the assets owned by him, since the nature of the transaction allows the debt to be split into any number of parts, for each of which a bill of exchange with its own maturity date is issued. One or more of these notes may be sold.

One should not think that the primary and secondary forfeiting markets are strongly separated. In fact, some forfaiters, operating in the secondary market, remain holders of a certain portfolio of forfaited securities, while others, who have little connection with the primary market, may be active traders in the secondary market.

Often, there is no direct transfer of forfeiting papers to the new owner. He knows the value of the securities, the terms of their circulation, he knows the guarantor, but not the original issuer. In this case, the previous owner, upon expiration of the securities, collects payments and transfers them to the new owner. What explains such secrecy on the secondary forfeiting market?

Primarily for reasons of confidentiality. The exporter has an interest in confidentiality about how its transactions are financed and does not want the buyer (or any third party) to know about its financial needs and the mechanism used to finance its transactions. Any sale of forfeiting securities involves the risk of unwittingly expanding the circle of business relationships, which makes it difficult for the exporter to control. To avoid this, the latter seeks to establish certain restrictions in the contract that would interfere with the free circulation of forfeiting securities. Despite all the difficulties, the secondary forfeiting market is thriving.

So, for a forfaiter, the secondary market has the following attractive features:

- the income on forfeiting securities is usually higher than that which can be obtained on other securities (with the same level of risk, the same terms and currency);

- any investor is interested in reducing risks, and guarantees on forfeiting securities or aval of first-class banks are the best security for payment.

Despite all the attractiveness of investing in forfaiting securities, the volume of such transactions and the number of forfaiters are still small. The forfaiting market has not yet developed to the size of a brokerage market. Many forfaiters, especially those trading on the primary market, believe that similar development could frighten many exporters and their banks, as it would lead to a loss of control over the securities issued to the market.

2.2.2 Synding

In the Russian factoring services market, the concept of “syndicated factoring” is quite new. Syndicated factoring is an alliance between a factoring company and a bank with the goal of jointly developing the factoring market.

Let's consider the general scheme of interaction between a bank and a factoring company. The bank provides:

- financial resources for organizing initial sales of joint products to bank clients;

- targeted lending to provide factoring financing to bank clients.

The company provides additional services - maintaining sales and providing all the necessary infrastructure for doing business:

- operational back office;

- risk management system;

- collection and management of accounts receivable.

The partner bank introduces its clients to factoring products, carries out pre-sales, etc.

Next, a factoring company is involved in the negotiations, bearing the client’s credit risks within the framework of this project, as a result of which the client goes through the approval procedure.

The next stage is signing a trilateral factoring agreement with the client. In accordance with it, the bank funds factoring operations and provides support in matters of document flow, and the factoring company finances clients with bank funds and provides a full range of factoring services.

The division of income received from transactions with the client is carried out in accordance with the terms of the agreement concluded between the factoring company and the bank.

The functions of the bank and factoring company are shown in the table.

The benefits are obvious to all stakeholders:

- the bank is expanding its product line, avoiding the costs of creating a factoring division;

- the factoring company gets access to funding and the opportunity to increase business volumes by using the resources of the bank and its branch network;

- the client can widely use commodity lending to its customers and, being freed from accounts receivable, gets the opportunity for additional lending.

Unlike a conventional loan, the financing limit does not depend on the financial condition of the company, it is calculated on the debtor. At the same time, neither the client nor the debtor needs to provide collateral, which means that all collateral assets are free, and you can take out loans for other purposes from banks.

The factor also monitors the receipt of payment from the client’s debtors and reminds the buyer of the need to make payment within a predetermined period.

The final cost of syndicated factoring services by a bank is determined by the number of debtors, the deferment period, debt diversification and turnover for the last month.

The main consumers of factoring are small and medium-sized businesses engaged in the production, supply and wholesale sales of consumer goods. In conditions of fierce competition, they are forced to agree to deferred payments.

The total volume of trade loans is growing. But not every supplier yet appreciates the lost profit that his company could receive by returning funds to circulation and eliminating cash gaps using factoring.

Partnership between a bank and a factoring company has long become a normal practice all over the world. The emergence of syndicated factoring in Russia indicates the development of the factoring market, pushing it to the international level and making it of higher quality.

2.2.3 Floating rate financing

An important direction in the development of the forfeiting market is the expansion of financing, which involves calculating a discount based on a floating interest rate. This practice is explained by the increasing volatility of interest rates and reflects the reluctance of many banks to enter into transactions at fixed rates.

From the point of view of the exporter, any sale based on a floating interest rate impairs the possibility of obtaining maximum funds. The fact is that the primary forfaiter sells securities on the secondary market at a discount based on the prevailing interest rate, and the sale is subject to final financial settlement on a certain date and taking into account subsequent movements in interest rates. In fact, there may be several such dates before the expiration of the bill. Thus, the agreement implies high degree risk and may lead to the emergence of unpredictable liabilities, which, of course, is a cause for concern not only for the forfaiter, but also for his auditors.

2.3 Size of the forfeiting market

Any estimate of the size of the global forfeiting market is nothing more than a guess. This market has grown significantly in recent years, but still remains a small part of the market for medium-term financial resources. The reasons that led to its emergence and growth will continue to operate in the foreseeable future, however, there are certain restrictions on the access of new forfaiters to it. These restrictions are as follows.

1. Since we are talking about medium-term (in the Western sense) financing, banks often find it difficult to coordinate the repayment dates of the forfeited assets with the repayment dates of their own loans. Thus, there remains a fairly high risk in the event of changes in interest rates, which significantly restrains the activity of participants in this market.

2. When carrying out forfeiting operations, special equipment is used, which requires very qualified service. There are very few specialists in this field, and their training takes a long time.

3. Banks do little research and development of the forfeiting market.

2.4 Stages of transaction preparation

A) INITIATION OF TRANSACTION

There are two possible initiators of a forfeiting transaction - the exporter and the importer. Most often, this role is played by the exporter or his bank. And this is natural, since either bills of exchange issued by the exporter or promissory notes paid to him are presented for discounting. This is what determines the need for negotiations between the initiator and the forfaiter in the early stages of contract preparation. Even before the exporter and importer sign a contract, the forfaiter can determine his requirements for a guarantee or aval, at least approximately indicating the size of the discount. Without this information, the exporter is unable to accurately determine the contract price.

In practice, not every exporter enters into negotiations with a forfaiter at such an early stage, and as a result, he may find that the financing margin he included in the contract price is unreasonable.

B) DETERMINING THE NATURE OF THE TRANSACTION

The first thing the forfaiter must determine for himself is the nature of the transaction, i.e. find out which securities he will have to deal with - financial or commodity . Financial bills are securities issued for the purpose of accumulating funds that the borrower can later use at his own discretion. Commodity or bills of exchange are issued in case of transactions of purchase and sale of products. However, the boundary between financial and commodity transactions is blurred to a certain extent (for example, a bill of exchange is issued without a trade transaction being completed, but then the funds received are used to purchase some goods).

Most of the bills sold on the secondary forfeiting market are commodity bills. Therefore, in the case of an offer of financial securities, a preliminary written warning about this is considered mandatory. If this condition is violated, the buyer of financial securities has the right to demand cancellation of the transaction.

The forfaiter should always have on hand a brief description of the transaction underlying the transactions with bills. It can be received by telex or fax upon preliminary discussion of the terms of the transaction.

C) OTHER INFORMATION REQUIRED BY THE FORFEITER

Once the forfaiter has ascertained the nature of the transaction, he must determine the following.

1. Amount of financing, currency, term.

2. Who is the exporter and in what country is he located? This issue is important because although the financing is provided without recourse, there are circumstances in which the forfaiter may have a claim against the exporter. The creditworthiness of the exporter also matters. In addition, the forfaiter must verify the authenticity of the signatures on the bills,

3. Who is the importer and what country is he from? To verify the authenticity of the signatures and the compliance of the drafting of bills with the law, the forfaiter must accurately determine the importer and his location.

4. Who is the guarantor and what country is he from?

5. How is a debt subject to forfeiting formalized: a promissory note, a bill of exchange, etc.?

6. How is the debt insured?

7. Periods of repayment of bills, repayment amounts.

8. Type of goods exported. This question is of interest to the forfaiter, firstly, from the point of view of the expediency of the entire transaction, and secondly, from the point of view of the legality of export.

9. When will the goods be delivered? The date must be close to the funding date. It is also important that the guarantor is unlikely to be able to valorize the bill until delivery has been made.

10. When will the documents subject to discounting arrive? Until the documents are received, the forfaiter will not be able to verify and discount them.

11. What licenses and other documents under the terms of the contract must be presented for the supply of goods? The Forfaiter is responsible for ensuring that there are no delays in the performance of the contract financed by it.

12. To which country will the payment to the forfaiter be made? This is important to know, since payment to a foreign bank may delay the receipt of funds, and such a delay must be taken into account when discounting securities, there is also the possibility of freezing funds in accounts by the country's authorities, and this possibility must also be taken into account when calculating the discount. The forfaiter may even refuse the transaction if he is not satisfied with the bank into which the funds will be received.

D) CREDIT ANALYSIS

Once the forfaiter receives answers to the above questions, he must conduct a credit analysis. Most forfeiting transactions are carried out by banks, and credit analysis is a mandatory stage in preparing the transaction. There are at least four types of risk that must be analyzed by the forfaiter : guarantor's risk, buyer's risk, importer's risk, country's risk.

In addition, the forfaiter must collect the following information .

1. What is the creditworthiness of the guarantor?

2. Will it be possible to sell the securities at an acceptable price in the future?

3. Are there any doubts about the creditworthiness or competence of the exporter or importer and on what basis are they based?

4. Is it possible to purchase this debt taking into account the securities already in the forfeiter’s portfolio? What degree of risk is expected in this case?

After this, the forfaiter can name his fixed price. However, from the moment the application for a forfaiting transaction is submitted until the actual delivery of goods, when the forfaiter can buy bills of exchange, it takes certain time, during which interest rates may change in a direction unfavorable for the forfaiter. This risk period can be divided into two parts.

E) DOCUMENTARY REGISTRATION OF THE TRANSACTION

Once a preliminary agreement on the transaction has been reached, the forfaiter sends the offer documents (by telex or letter) to the exporter, who must confirm his acceptance in writing. The forfaiter also lists the documents that he needs to familiarize himself with before he starts discounting bills (license for the export of goods, other notification documents). Familiarity with the specified documentation should enable him to make sure that the transaction will be completed.

Once the offer is accepted by the exporter, he must prepare a series of bills of exchange or sign an agreement to accept promissory notes from the buyer. At this stage, the exporter must also obtain a guarantee or aval on his bills. In addition, he writes on the bills: “without the right of recourse.” Thus, all documents will be ready on the basis of which the forfaiter can make discounts, even if the goods have not actually been shipped yet.

E) EXECUTION OF THE CONTRACT AND SHIPMENT OF GOODS

2.5 Advantages and disadvantages of forfeiting financing

Forfaiting is a fairly flexible instrument of international finance. However, it is characterized by several limitations:

1. the exporter must agree to extend the loan term for a period from 6 months to 10 years or longer;

2. the exporter must agree to accept debt repayment in series;

3. If the importer is not a government agent or an international company, the repayment of the debt must be unconditionally and irrevocably guaranteed by a bank or government institution acceptable to the forfaiter.

In general, this tool has both advantages and disadvantages for everyone who uses it.

Benefits for the exporter

1) Providing forfaiting services on a fixed rate basis.

2) Financing at the expense of the forfaiter without recourse to the exporter.

3) The ability to receive cash immediately after the delivery of products or provision of services, which has a beneficial effect on overall liquidity, reduces the volume of bank loans, and makes it possible to reinvest funds.

4) No time or money spent on debt management or organizing its repayment.

5) No risks (all currency risks, risks of changes in interest rates, as well as the risk of bankruptcy of the guarantor are borne by the forfaiter).

6) Simplicity of documentation and the ability to quickly issue promissory notes.

7) Confidential nature of these transactions.

8) The ability to quickly verify that the forfaiter is ready to finance the transaction and promptly agree on the terms of the transaction.

9) The opportunity to receive in advance from the forfaiter an option to finance the transaction at a fixed rate, which allows the exporter to calculate his expenses in advance and include them in the contract price, and calculate other final figures.

Disadvantages for the exporter

1) The need to prepare documents in such a way that the exporter himself has no recourse in the event of bankruptcy of the guarantor, as well as the need to know the legislation of the importer’s country, which determines the form of bills, guarantees and aval.

2) The possibility of difficulties arising if the importer offers a guarantor that does not suit the forfaiter.

3) Higher forfeiter margin than with conventional commercial lending.

Benefits for the importer

1)

2) Possibility of obtaining an extended loan at a fixed interest rate.

3) Possibility to use a credit line at the bank.

Disadvantages for the importer

1) Reduced opportunity to obtain a bank loan when using a bank guarantee.

2) The need to pay a commission for the guarantee.

3) Higher forfeiter margin.

4) The possibility of difficulties arising with the payment of a bill of exchange as an abstract obligation in the event of delivery of substandard goods or failure by the exporter to fulfill any other terms of the contract.

Benefits for the forfaiter

1) Simplicity and speed of documentation.

2) The ability to easily sell purchased assets on the secondary market.

3) Higher margin than for lending operations.

Disadvantages for a forfaiter

1) No recourse in case of non-payment of debt.

2) The need to know the bill of exchange legislation of the importer’s country.

3) Responsibility for checking the creditworthiness of the guarantor.

4) The need to bear all interest risks until the expiration of the bills.

5) Inability to make payment ahead of schedule.

The disadvantages indicated in paragraphs 2 and 3 are characteristic not only of forfaiter. They are highlighted here for the reason that no additional debt agreements are drawn up for the forfaiter to which he could refer. It should also be remembered that the forfaiter bears political and other risks (transfer risks, risks of currency fluctuations). They are not noted as disadvantages for the forfaiter, since they are inherent in any form of international credit.

Benefits for the guarantor

1) Ease of completing a transaction.

2) Receiving a commission for your services.

Disadvantage for the guarantor

It is one, but very important, and lies in the fact that the guarantor assumes an absolute obligation to pay the bill of exchange guaranteed by him.

Conclusion

When coordinating export supplies, the most common source of problems is the buyer's lack of financial resources. This is especially true for exports to developing and unstable countries. It is for this reason that a variety of medium- and long-term trade finance mechanisms are in such active demand. Factoring has been increasingly used in Russia lately. But forfaiting services are provided on an extremely limited scale only to favorite clients. In vain: it is forfeiting that could support our weak non-resource exports.

Forfaiting as a method of relatively long-term financing is of interest to large non-commodity exporters. Forfaiting solves the problem of insufficient available funds of the buyer when the seller is unable to provide a deferment or installment payment at his own expense for what the buyer needs time. As a rule, the amounts of forfeiting contracts do not fall below 100 thousand US dollars, while amounts of hundreds of millions of dollars are not something exotic.

Forfaiting is especially interesting for exporters entering risky markets in developing countries. It is these options that may primarily be available to Russian manufacturers: the international competitiveness of Russian products leaves much to be desired, but “third” countries may represent an adequate market for not very advanced Russian products. However, in these markets, foreign companies actively compete with us - often successfully precisely because they can offer convenient long-term lending conditions to buyers. And often - precisely with the help of forfeiting.

It is interesting that during the Soviet era, foreign trade contracts were carried out using the forfeiting scheme very often. The main (if not the only) player in this market was Vneshtorgbank of the USSR, but what a one! He quite effectively provided Russian enterprises (who were completely unaware of the scheme) with cash flow, and he himself even participated in operations on the secondary market for forfeiting obligations.

In Russia, forfeiting is developing quite slowly. At the same time, many banks, which in principle mention it among their services, instead of answering the question “what are the conditions,” state that they do not engage in forfeiting.

An obvious barrier to the development of forfeiting in Russia is the specific geography of Russian imports. As a rule, country and other risks are high in Russia, and it is very difficult for Western companies to find a worthy guarantor/valier for a buyer’s bill in a country with an unstable economy.

Secondly, the forfaiting scheme is still much more complex to organize than, for example, factoring. Practice shows that if an enterprise has the opportunity (for relatively short transactions) to use both factoring and forfeiting, then the choice is always made in favor of factoring.

Another limiter on forfeiting is Russian legislation. Therefore, Russian banks can only act as an agent, but not as a forfeiter. It is also extremely slow to accept global business practices, seeing in each new instrument a way to deceive the fiscal system. If we follow it literally, an advance payment is considered the only possible form for an indisputable subsequent VAT refund to the exporter. But, since 100 percent advances are not paid anywhere, our tax authorities gradually got used to the fact that a letter of credit -normal form calculations for export contracts, and not at all a way to circumvent the law. And still, contrary to all world forfaiting practice, 100% of the contract amount is credited to the Russian exporter’s account, including the discount, and only then the discount amount is transferred to the forfaiter. Normalization of tax legislation could significantly increase the opportunities for forfeiters and their clients.

This year, for many suppliers, factoring has become the only opportunity to bridge cash gaps, avoid unnecessary losses and at the same time retain valuable counterparties. Since the end of April, thanks to the efforts of legislators, this financial instrument has acquired additional tax advantages, which it would be a shame not to take advantage of.

Factoring is often compared to a bank loan. From the company’s point of view, factoring and credit pursue the same goal - to replenish working capital, but factoring has a number of significant advantages:

- the company does not need to provide collateral to the bank and draw up a lot of paperwork; it is only necessary to notify customers about changes in the details for payment for supplies;

- there is no need to withdraw funds from circulation to repay the loan;

- factoring services are systematic, while re-obtaining a loan may be refused;

- the amount of financing for factoring is not limited: the greater the sales volume of the client company, the higher the amount of financing; The issuance of a loan is limited to a certain period and amount.

Factoring is an alternative to expensive and sometimes inaccessible overdraft loans and, at the same time, an effective tool for managing working capital in trade and purchasing activities with deferred payment.

Thus, knowing the obvious advantages of both factoring and forfeiting, we can confidently talk about the further development of these financial instruments.

References

1. Civil Code of the Russian Federation (parts 1 and 2);

2. Federal law dated December 10, 2003 No. 173-FZ (as amended on July 22, 2008) “On currency regulation and currency control”;

3. Federal Law No. 395-1 dated December 2, 1990 (as amended on April 28, 2009) “On Banks and Banking Activities”;

4. Ed. Korobova G.G. Banking - M.: Economist, 2005;

5. Ed. Lavrushina O.I. Banking - M.: Finance and Statistics, 2005;

6. Akimova V.V. Syndicated factoring - Russian realities. "Factoring and trade finance." II quarter 2009 No. 2;

7. Vasilenkov S. Factoring: who takes risks and where. “Risk Management”, September-October 2008 No. 9-10;

8. Lobanova N.I. Short-term trade finance: factoring and forfeiting “International banking operations”, July-August 2006 No. 4.

9. Maksimova L.F. Factoring as a method of replenishing working capital of an enterprise "Vestnik Federalnogo" Arbitration Court West Siberian District", March - April 2008 No. 2;

10. Pokamestov I.E., Lednev M.V. Organization of factoring business: from decision making to building a sales strategy. "Organization of sales of banking products." - 2007, No. 1;

11. Pokamestov I.E. Factoring market foreign countries. "Bank lending". - 2007, No. 2;

12. http://www.factoringpro.ru/;

13. http://www.masterleasing.ru/forfejting.htm;

14. http://www.reglament.net/bank/mbo/2009_3_article.htm.

Appendix 1

Factoring scheme

Posted on http://www.allbest.ru/

1. Delivery of goods. The client delivers the goods to the buyer on deferred payment terms.

2. Assignment of the right to claim a debt. The client assigns to the bank the right to claim the delivery debt.

3. Advance payment. Immediately after submitting the shipping documents, the bank pays an advance payment to the client (up to 90% of the amount of goods delivered).

4. Payment for goods by the buyer. The debtor makes payment for the delivered goods to the bank.

5. Final payment for delivery. After receiving payment from the debtor, the bank pays the client the remaining funds (minus commission and advance payment).

Appendix 2

Forfaiting scheme

Posted on http://www.allbest.ru/

1. Contract;

2. Issue of a promissory note;

3. Shipment of goods;

4. Providing documents for the shipment of goods;

5. Signing a forfeiting agreement, aval;

6. Verification of documents, payment minus discount;

7. Transfer of funds;

8. Presentation of a bill for redemption;

9. Transfer of funds under a bill of exchange.

Appendix 3

Comparative characteristics of factoring and forfaiting

FACTORING	FORFATING
1. The object of the transaction is primarily an invoice.	1. The object of the transaction is primarily a bill of exchange (promissory note or transferable bill).
2. Short-term lending (up to 180 days).	2. Medium-term lending (from 180 days to 10 years).
3. The loan amount is limited by the capabilities of the factor.	3. The loan amount can be quite high due to the possibility of syndication.
4. The factor advances the working capital of the lender 70-90% of the debt amount. The remaining 10-30% goes to the lender's account only after the buyer of the product repays the debt, minus commission and interest.	4. The forfaiter pays the debt in full minus the discount.
5. The factor either reserves the right of recourse to the creditor or waives this right, but even in this case, when exporting goods, political and currency risks are borne by the exporter.	5. The forfaiter bears all the risks of non-payment of debt, including political and currency risks when exporting goods.
6. The operation can be supplemented with elements of accounting, information, advertising, sales, legal, insurance and other services for the creditor (client).	6. Does not require any additional maintenance.
7. The factor does not provide for the possibility of resale of the factoring asset.	7. It is possible for the forfaiter to resell the forfaiting asset on the secondary market.
8. No guarantee from a third party is required.	8. Third party guarantee or aval is required.
9. Involves lending against an already existing monetary claim, or against a claim that will arise in the future, but clearly indicated in the financing agreement for the assignment of a monetary claim.

Forfeiting mechanism

To make it clearer, let’s try to analyze the scheme of forfaiting operations more clearly.

The point in this case is the following. The forfaiting agent, whose role, as already mentioned, is the bank, buys from the seller (that is, the exporter in a given trade transaction) the financial obligations of the buyer (that is, the importer). In this case, the bank itself pre-pays – in whole or in part – to the seller the cost of the consignment of goods that is supplied during the forfeiting operation.

Subsequently, the buyer-importer transfers to the bank the amount he (the bank) previously paid and the corresponding remuneration (most often, the remuneration to the forfaiting agent does not exceed 1.5%, although some banks charge a larger commission).

Differences between forfaiting, factoring and leasing

International forfeiting has a number of differences with such basic (and most popular in Russia) types of financial transactions as and.

Factoring and forfeiting are often considered to be similar mechanisms, but there are also very significant differences. Among the main differences between forfaiting and international factoring, one can first of all note the impossibility of recourse against the seller during forfeiting (that is, in this case the exporter does not have the risk of non-payment under the contract). In addition, forfaiting lending is designed for long-term (or at least medium-term) contracts and involves a fairly large transaction amount, while international factoring will be a more profitable solution for transactions with smaller amounts - in general, factoring is popular among small companies.

Another point is that forfeiting is always carried out exclusively with the assistance of a forfeiter (that is, a bank), which, by the way, takes on not only financial, but also political risks. If during factoring only part of the total amount of the claim is frozen, then during forfeiting the full amount is paid.

Forfeiting operations should not be confused with leasing. Leasing is essentially a financial lease with an option to buy, although in fact these are not identical concepts. Item leasing agreement completely becomes the property of the creditor (lessee) only after full payment of its cost or upon expiration of the lease agreement.

Forfaiting, as we can see above, has a fundamentally different lending scheme. So far, leasing is the most popular among Russian businesses, which is due to the very characteristics of modern foreign trade activities, but we should not forget that carrying out forfeiting operations is associated with fewer difficulties (including documentary ones) compared to leasing lending.

A few words in favor of international forfaiting

Forfaiting transactions undoubtedly have several significant advantages over other types of foreign trade transactions related to lending. Firstly, the bank in this case fully assumes all the risks of this operation. Secondly, today the forfeiting securities market is actively developing, where debt can be sold quite profitably. In this case, the full amount of the debt obligation can be divided into parts, drawing up a separate bill for each of these parts (accordingly, not only the entire debt can be sold on the market, but also its individual parts). In addition, forfeiting is a fairly flexible type of lending - in particular, it is possible to make debt payments with a grace period (by agreement of the parties).