7/27/2019 01 Abs Fm Revservices

http://slidepdf.com/reader/full/01-abs-fm-revservices 1/14

"Why should a financial engineer bepaid four to a hundred times morethan a real engineer?

A real engineer builds bridges.

A financial engineer builds dreamsand, when those dreams turn out tobe nightmares, other people pay for

it." — Andrew Sheng,

President, Fung Global Institute ,Hongkong

7/27/2019 01 Abs Fm Revservices

http://slidepdf.com/reader/full/01-abs-fm-revservices 2/14

Financial services

FACTORING-

FUNCTIONS OF A FACTOR:-

• Administration of Sales Ledger 

• Provision of collection facilities

• Financing of trade debts.• Assumption of Credit Risk 

• Provision of advisory services.

7/27/2019 01 Abs Fm Revservices

http://slidepdf.com/reader/full/01-abs-fm-revservices 3/14

FACTORING

• TYPES:-

 – FULL FACTORING

 – RECOURSE FACTORING

 – MATURITY FACTORING

 – ADVANCE FACTORING/INVOICE

DISCOUTNING – UNDISCLOSED FACTORING

 – AGENCY FACTORING

7/27/2019 01 Abs Fm Revservices

http://slidepdf.com/reader/full/01-abs-fm-revservices 4/14

FACTORING

• ADVANTAGES:-

 – OFF BALANCE SHEET FINANCE

 – REDUCTION OF BANK 

BORROWINGS/OCL

 – IMPROVES CURRENT RATIO

 – HIGHER CREDIT STANDING – IMPROVED EFFICIENCY

7/27/2019 01 Abs Fm Revservices

http://slidepdf.com/reader/full/01-abs-fm-revservices 5/14

Pre-factoring scenario

Current liabilities Current Assets

Bank-C/C-agt.

Inventory

Bank-C/C agt.

receivables

70

40 110

Inventory 100

OCL 40 Receivables 80

NWC 50 OCA 20

TCL 200 TCA 200

7/27/2019 01 Abs Fm Revservices

http://slidepdf.com/reader/full/01-abs-fm-revservices 6/14

Post-factoring scenario

Current liabilities Current Assets

Bank-C/C-agt.

Inventory

Bank-C/C agt.

receivables

70

-- 70

Inventory 100

OCL 16 Receivables 16

NWC 50 OCA 20

TCL 136 TCA 136

7/27/2019 01 Abs Fm Revservices

http://slidepdf.com/reader/full/01-abs-fm-revservices 7/14

Comparison of various Types of 

FactoringType Short term fin. Sales Ledger admn. Credit protection

Recourse YES YES NO

Non-Recourse YES YES YES

Maturity NO YES NO

Invoice disctg YES NO NO

Others: Bank Participation factoring/ Supplier Guarantee factoring/ Cross-

border/International factoring

7/27/2019 01 Abs Fm Revservices

http://slidepdf.com/reader/full/01-abs-fm-revservices 8/14

FACTORING

• Factoring introduced in India after 

Kalyanasundaram Committee report in

1991.

• Only SBI and Canara Bank offer ―Recourse

Factoring‖ 

• Private Cos. Are also permitted to engage inthis business.

7/27/2019 01 Abs Fm Revservices

http://slidepdf.com/reader/full/01-abs-fm-revservices 9/14

FORFAITING

• WHAT A DOMESTIC RECEIVABLE(BILL) ISTO FACTORING IS AN EXPORTRECEIVABLE(BILL) IS TO FORFAITING

THE DIFFERENCE

1) The export bill to be backed by an LC/

 bank guarantee.

2) always without recourse to exporter.

3) Transaction based

7/27/2019 01 Abs Fm Revservices

http://slidepdf.com/reader/full/01-abs-fm-revservices 10/14

FORFAITING

• Advantages:-

 – Deferred Payment exports converted to Cash

 – Export free from exchange risk 

 – Receivable Management

 – 100% financing possible

7/27/2019 01 Abs Fm Revservices

http://slidepdf.com/reader/full/01-abs-fm-revservices 11/14

A COMPARISON

7/27/2019 01 Abs Fm Revservices

http://slidepdf.com/reader/full/01-abs-fm-revservices 12/14

SECURITISATION

• PARTIES:-

- ORIGINATOR  — SPV — INVESTOR 

• METHODS:-

 – SALE OF LOAN RECEIVABLES FOR CASH

 – ASSIGNMENT OF RECEIVABLES FOR 

DEFERRED PAYMENT

7/27/2019 01 Abs Fm Revservices

http://slidepdf.com/reader/full/01-abs-fm-revservices 13/14

SECURITISATION

• SALE OF LOAN ASSETS:-

 –  NOVATION:-FRESH CONTRACT- BORROWER-

BUYER-REQUIRES NOVATION OF SECURITYALSO

 –  ASSIGNMENT(S.3 OPF T.P.ACT)

 –  SUB-PARTICIPATION-PAYMENT ON RECOVERY

 –  LEGAL ISSUES:- –  CONFIDENTIALITY/RESCHEDULING/SET OFF

7/27/2019 01 Abs Fm Revservices

http://slidepdf.com/reader/full/01-abs-fm-revservices 14/14

Securitisation

• Pay through certificates

• Pass through certificates

• Collateralisation

• Accounting effects on such Investments.