Introduction:
Factoring is a package of financial services that consist of working capital financing, Credit risk protection, maintenance of sales ledger & collection of export receivables from the buyers located overseas.
ECGC enters in the contract with exporters to purchase exports receivables, without resource and assuming credit risk on the oversea buyers. If the buyers defaults, the payment for undisputed liability will be made by ECGC.
Story / Example:
Let’s understand above in a story, Gopal wanted to export 250 INR Cr. goods to the USA. So he made agreement with his customer about products and its deliverables. But Gopal is concern about what if something go wrong and bad happen and his customer fails pay?
In this case if you have reputation, (I will note that in this article later,) and if you qualify, before taking risk of sending or working such deal, you can go to ECGC and get your Risk reduced.
So, if his customer didn’t pay or got defaulted then undisputed liability will be paid to you by ECGC. Now What is undisputed liability that I will explain in other article.
Eligibility for ECGC’s Export Factoring Facility:
Micro Small & Medium Enterprises (MME) an defined in MSMED Act 2006.
Minimum three years’ experience in exports with good track record.
Satisfactory business/financial performance of the exporter for the previous three years.
Exports to acceptable buyers from A1 and A2 countries.
Exports on Open Account terms up to a credit period of 180 days.
Commodities other than Gold, Diamond, Gems, Jewellery, Iron Ore, Granite and Software are eligible Assignment of accounts receivables.
Benefits of ECGC’s Export Factoring Facility
Finance against Export receivable
Large working capital for growing companies
Without recourse finance on undisputed export bills.
100% Credits protection on buyer
Maintanance of sales ledger for transactions with a specific buyer.
Easy accessibility of finance for improvement in cash flow and opportunity to make use of suppler discounts.
Increase sales in the overseas markets by extending competitive credit terms.
Collection of export proceeds and recovery of unpaid bills Lower cost compared to LC transaction.
Types of Factoring in Financial Services:
Recourse and Non-recourse Factoring
Full-Service Factoring
Domestic and Export Factoring
Spot versus Regular Factoring
Maturity and Advance Factoring
Disclosed and Non-disclosed Factoring
Bank Participation Factoring
Limited Factoring
Supplier Guarantee Factoring
Reverse Factoring
Write a comment if you want detail on type of factoring and I would be happy to get that valuable information for you.
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