1. Factoring, Forfaiting and Leasing as Nontraditional Forms of Foreign Trade Financing FEM, MPA Martina Horňáčeková 2nd year, Andrea Králiková 2007/2008

2. Factoring  The way of financing short-term claims (14-180 days)  An attractive alternative to raising equity for small innovative fast-growing firms fast-growing firms

3.   The three parties directly involved are: the seller, debtor, and the factor.   The seller is owed money (usually for work performed or goods sold) by the second party, the debtor.   The seller then sells one or more of its claims at a discount to the third party, the specialized financial organization (the factor) to obtain cash. The debtor then directly pays the factor the full value of the claim.

4. 2 kinds of factoring   Domestic   Exporting

5. Types of factoring   Real factoring   Unreal factoring   Full factoring   Confidential factoring   Silent factoring   Obvious factoring   Exporting factoring

6. Advantages » » The factor carries the risk of not paying the obligation » » The businessman does not have administrative duties, e.g. evidence of claims » » Financial covering of seasonal costs, e.g. seasonal selling, advertising or company's expansion » » Getting better conditions thanks to the faster paying of supplier

7. Functions   Financing function   Function of providing services   Insurance function   Cash function

8. Who is the appropriate addept for factoring? Firms and bussinessmen   always the same customers   the cooperation lasts at least one year   you regularly supplies at least three customers   your supplies are highly seasonable   your company can not finance the orders itself

9. Forfaiting   flexible opportunity of financing   purchasing long-term and middle-term claims (1-10 years) by bank or forfaiting institution   claims are connected with export of goods and services without back affect of the supplier

10.   purchaser of a claim = FORFAITER (usually bank or forfaiting institution)   min. value of the claim – 1 000 000 SKK   claims connected with investment activity – export of machines, means of transport, equipment...   mostly used by exporters who need cash instead of the claim   possible to use forfaiting in home trade as well

11. Evolution of forfaitig   started in 50´s – 60´s of 20th century in Switzerland   70´s- the 1st contact with the Slovak banking system   90´s – forfating in Slovakia in fully range   ČSOB   in Slovakia – claims usually connected with international trade

12.   forfaiting – bigger risk than factoring – each claim is carefully considered (credibility of the debtor, country, maturity date, form of assurance, awaited evolution of interest rates, political situation...)   the price is set by banks individually   set for legal entities

13. Advantages of forfaiting   it influences cash-flow of the exporter positively   foreign claims – only in stable currencies   simple documentation and administration of business case   individual consideration of each claim   taking over the risk (economic risk, risk of the country, political risk, currency risk) by the forfaiter

14. Differencies FORFAITING   long-term claims   a claim must come into existence at first, then it is purchased   single claims are purchased   a guarantee is required   no additional servicies connected with a claim are provided FACTORING   short-term claims   a claim can be purchased before its existence   block of claims is purchased   a guarantee is seldom required   additional servicies connected with a claim are provided

15. Leasing  lease = hire, lend   Special form of getting and financing goods   Fixed regular payments

16. When doing a leasing contract  Two parties: the person who leases (leaser) and leaseholder  4 categories of leaser:  Leasing companies  Banks and financial institutions  Branches of goods producers  Combined firms

17. The principal   The leaser leases the leaseholder a certain article for using while the leaser remains the owner of the article, or the rights are taken over by the leaseholder

18. The history   1877 - American company Bell Telephone Company decided not to sell but hire the telephones   1952 - the first leasing company in USA   At the beginning in car business

19. Two types of leasing contracts   Financial  long-term lease   The property rights gains the leaseholder after finishing the lease   Operative  short-term lease   The leased article remains in property of the person leasing it

20. Advantages   For the leaseholder No loan conditions No investment restrictions It covers almost 100% of costs Provides yields in cash   For the leaser Enables diversification of business risk Can get back the article when the leaseholder does not fulfil the agreed conditions Tax regulations

21. Thank you for the attention