FACTORING IN EXPORT FINANCE
Factoring may be defined as “A contract by which the factor is to provide at least two of the services, (finance, the maintenance of accounts, the collection of receivables and protection against credit risks) and the supplier is to assigned to the factor on a continuing basis by way of sale or security, receivables arising from the sale of goods or supply of services”.
Factoring offers smaller companies the instant cash advantage that was once available only to large companies with high sales volumes. With Factoring, there’s no need for credit or collection departments, and no need to spend your profits on maintaining accounts receivables.
In simple words…Factoring turns your receivable into cash today, instead of waiting to be paid at a future date.
International export Factoring Scheme:
RBI has approved the above scheme evolved by SBI Factors and Commercial Services Pvt. Ltd Mumbai for providing “International Export Factoring Services” on “with recourse” basis. The salient features of the scheme are as follows:
- An exporter should submit to SBI Factors & Commercial Services Pvt.Ltd i.e. the Export Factor(EF) a list of Buyers(customers) indicating their names & street addresses and his credit line needs .
- The Import Factor (IF) located in the importer’s country selected by EF, will rate the buyer’s list and the results will be reported to the exporter through EF. The exporter will apply for a credit limit in respect of overseas importer. IF will grant credit line based on the assessment of credit-worthiness of the overseas importer.
- The exporter will thereafter enter into an export factoring agreement with EF. All export receivable will be assigned to the EF, who in turn will assign them to IF.
- The exporter will ship merchandise to approved foreign buyers. Each invoice is made payable to a specific factor in the buyer’s (importer) country. Copies of invoices & shipping documents should be sent to IF through EF. EF will make prepayment to the exporter against approved export receivables.
- EF will report the transaction in relevant ENC statement detailing full particulars, such as Exporter’s Code Number, GR Form Number, Custom Number, Currency, Invoice value etc.
- On receipt of payments from buyers on the due date of invoice, IF will remit funds to EF who will convert foreign currency remittances into rupees and will transfer proceeds to the exporter after deducting the amount of prepayments, if made. Simultaneously, EF will report the transaction in the relative ‘R’ returns enclosing duplicate copy of the respective GR form duly certified. The payment received will be the net payment after deduction of a service fee, which ranges from 0.5 % to 2% of the value of the invoices.
- If an approved buyer (importer) is unable to pay the proceeds of exports, IF will pay the receivables to EF, 100 days after the due date. The transactions of this nature will be reported by EF in the half yearly statements which are to be submitted to RBI, indicating therein the reasons for delay /non payment.
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