Priorbank would like to recommend that you take advantage of factoring.
Factoring is financing under the concession of monetary claims.
Belarusian enterprises often have to make substantial abatements, granting a delay of payment in order to promote further development and to increase the competitiveness of the goods produced.
A delay of payments for supplied goods or rendered services entails, in most cases, a lack of working capital necessary for purchases of raw materials, payments to suppliers, expansion of market shares and maintaining the range of goods. Meanwhile, granting an extended delay of payments can give a considerable competitive advantage in the market, and can sometimes be the deal winning argument.
The velocity of working capital in circulation accelerates with the use of factoring. Clients can receive money as soon as the supply of goods has been fulfilled, without the need to wait for delayed payments (the end of goods credit validity period.) The main purpose of factoring is to maintain a company’s operation in such a way that it is able to grant delays of payments to its clients without suffering a lack of its own working capital. The company sells its outstanding receivables to the bank and the bank transfers the amount of financings, minus the discount, to the client’s current account.
Legislation
Article 772 Of the Civil Code of the Republic of Belarus:
According to the contract of financing under the transfer of monetary claims (factoring) one contract party (factor) is under an obligation to the other contract party (creditor) to enter into a monetary obligation between a creditor and a debtor on the side of the creditor through the payment of the amount of money obligation minus the discount (the difference between the amount of money obligated and the amount paid by the factor to the creditor) to the creditor with a lapse of the creditor’s rights to the factor (disclosed factoring) or without a lapse of the creditor’s rights to the factor (undisclosed factoring.)
Main terms
Discount is the difference between the amount of the debtor’s monetary obligation and the amount paid by the factor to the creditor.
Debtor is an enterprise that has been granted a delay of payments for supplied goods (rendered services) or extended a goods credit to.
Creditor (financial receiver according to the contract of factoring) is an enterprise that has extended a goods credit or granted a delay of payments for supplied goods (rendered services) to a debtor.
Right of regress. A creditor guarantees to a factor (i.e. a bank) payment of accounts receivable from the side of the debtor and takes the risks of monetary obligation non-payments.
! The Bank buys liabilities, which have yet to meet their date of maturity.
!The Bank has the right to return the bought accounts payable to your enterprise and to call for full repayment of the amount of financing should your debtor fail to meet their payments within the terms of the contract.
Factoring contracts are classified by:
- Disclosed factoring. A debtor is informed by the creditor about the making of a factoring contract, according to which the rights of the creditor lapse to the bank. In this case debtors transfer money to the factor’s account.
- Undisclosed factoring. A debtor is not informed by the creditor about the making of a factoring contract, according to which the rights of the creditor lapse to the bank. In this case debtors transfer money to the creditor’s account.
- Domestic factoring. Contract parties are residents of the Republic of Belarus.
- International factoring. One of the contract parties is a non-resident of the Republic of Belarus.
- Recourse factoring. A bank has the right to return accounts receivable, if unpaid by a debtor within the fixed period, to a creditor, if the creditor guarantees to the factor (i.e. the bank) payment of accounts receivable by the debtor and takes the risks of the accounts receivable non-payments.
- Non-recourse factoring. A bank finances a creditor without the right to return accounts receivable, if unpaid by a debtor within the fixed period, to a creditor. In this case the bank takes the risks of the accounts receivable non-payments.
On the basis of supply agreements and shipment documents submitted by a creditor, taking stipulated periods of payment into account, the bank determines the terms of financing. The amount of discount depends on the period of financing, terms of payment and interest rate. In other words, discount constitutes bank’s reward for the service rendered.
Thus, the enterprise receives to its current account the amount of funds equal to the amount of accounts payable less the discount.
Using factoring gives you the opportunities of:
- effective cash-flow planning;
- an increase in sales volume;
- proposing to debtors longer periods of payments.