FACTORING AND FORFEITING. the faster way to get your money

FACTORING AND FORFEITING the faster way to get your money

3 CONTENTS FACTORING 4 DOMESTIC FACTORING 5 1. Supplier s factoring (Reverse factoring) 5 2. Selective factoring with right of recourse 6 3. Individual purchase of invoices (invoice discount) with right of recourse 7 4. Long term factoring - purchase of receivables on the basis of leasing agreements 8 INTERNATIONAL FACTORING 9 1. Export factoring 10 2. Import factoring 11 BILL OF EXCHANGE PURCHASE (DISCOUNTING) 11 FORFEITING 12 CONTACTS 14

FACTORING If your money is worth more today than tomorrow then use factoring of Splitska banka! Factoring will enable you the collection of the issued invoices before the maturity date. Factoring is a financial service which includes some of the below mentioned services: Financing - disbursement of advance in the value of 70%-100% of the non due invoice amount, 4 reduced by the discount amount Insurance - in case of factoring without recourse, a factor insures the collection of A/R 1 from the debtor Collection - a factoring service which includes the collection of A/R from the debtor, notifying the debtor on the liability s maturity date, sending of reminders etc. Administration - service of administering the buyers and suppliers balance sheets Factoring advantages are: enables cash inflow before invoice maturity date a fast and simple way financing operational activities liquidity improvement and cash flow speeding up improvement of credit worthiness (in case of without recourse factoring) collection risk mitigation (in case of without recourse factoring ) sale growth financing possibility of buyers financing for longer periods A Factor is a bank or a specialized financial institution which provides factoring services. A Seller is a company having non due A/R against the issued invoices. Such company concludes a factoring agreement with the Factor for the purpose of speeding up the cash flow and shortening the A/R collection period. In such way, A/R with deferred payment become immediately collectible A/R. A Debtor is a company liable to pay the invoice at maturity. The Debtor is notified about the agreed factoring between the Factor and the Seller and it agrees to settle the liability at the maturity date of the invoice, in favor of the Factor s account (it is possible to agree a direct payment on the account of the Seller). 1 account receivables

DOMESTIC FACTORING 5 Splitska banka offers the following services in the segment of domestic factoring: 1. Supplier s factoring A Debtor can agree with Splitska banka the financing of its suppliers through supplier s factoring. The supplier s factoring is approved on the basis of the credit worthiness of the Debtor. In such way, the Debtor s suppliers get the short term financing in the fast way. The financing conditions are set on the basis of the credit worthiness of the Debtor which is, in principal, better than the credit worthiness of an individual supplier. Benefits for the Debtor: Extending the payment deadlines towards suppliers Working capital optimization Strengthening the relationships with the strategic suppliers Cash flow improvement and control Benefits for the suppliers: Liquidating up to 100% of A/R declared in the invoice Lower financing costs thanks to the better credit worthiness of the Debtor The stronger relationships with a strategic Debtor Volume increase of products and services sale DEBTOR 1 3 SPLITSKA BANKA 1. Supplier s factoring contract 2. Invoice payment at maturity 3. Disbursement of advance based on purchased a/r 2 SUPPLIER 1 SUPPLIER 2 SUPPLIER 3 SUPPLIER 4

2. Selective factoring with recourse 6 A Seller may agree with the Bank to factor A/R towards the Debtors selected by the Bank. The Bank and the Seller conclude the Factoring Agreement under which the Seller undertakes to sell to the Bank A/R towards the selected Debtors and the Bank undertakes to provide the financing up to a certain amount on the basis of the assigned A/R. Selective factoring advantages: Reducing the credit liabilities towards suppliers Speeding up a company s cash flow Increasing the self-financing share Mitigating the indebtedness indicators Controlling the Debtor s credit worthiness SELLER 1 3 SPLITSKA BANKA 1. Factoring agreement 2. Disbursement of an advance 3. Notification on a/r purchase (Assignment) 2 DEBTOR 1 DEBTOR 2 DEBTOR 3 DEBTOR 4

3. Factoring of individual invoices (invoice discounting) with recourse 7 The Bank monitors continually the market trends and does required analyzes of business entities. In such way, it enables individual invoice factoring, without additional approval procedure. Should the factoring between the Bank and the Seller be realized, the Agreement on Invoice Discount (A/R) is concluded as well as the Assignment Agreement under which the Debtor undertakes to pay its liability on the Bank s account, at maturity. Advantages of invoice discounting: Flexible management of liquidity Speeding up a company s cash flow Mitigation of indebtedness indicators 1 SELLER 2 4 SPLITSKA BANKA 1. Invoice factoring offer 2. Factoring & assignment agreement 3. Notification on factoring 4. Factor price disbursement 5. Payment of liability at maturity 3 5 DEBTOR

4. Long term factoring - A/C purchase under the operational leasing agreements 8 It is a specific factoring product in which a structure of the transaction can be also applied on factoring of other ABA 2 i.e. the agreements which are covered by additional security instruments (creating of services tailored as per the A/R seller s requirements). The seller of the A/R is a leasing company which wants to cash in the A/R immobilized in the operational leasing agreement. The Bank and the leasing company conclude the A/R factoring agreement and the assignment agreement between the Bank, the leasing company and the final debtor (i.e. the ultimate leasing beneficiary), is signed. The Bank pays out to the leasing company the whole agreement value, reduced by the factoring cost. Repayment of the purchased A/R is reconciled with the basic agreement i.e. with the lease agreement and the ultimate debtor effects the payment on the Bank s account, at maturity. Benefits of the long term factoring for the seller of the agreement: Liquidation of the long term assetscollection is transferred to the Factor Speeding up and improvement of cash flow the leasing company Financial capacity increase needed for business expansion LEASING COMPANY 2 3 SPLITSKA BANKA 1. Lease agreement 2. Lease agreement factoring 1 3. Factor price disbursement 4. Payment of liabilities (installments) at maturtiy 4 ULTIMATE DEBTOR = LEASING BENEFICIARY 2 Asset Backed Agreements

INTERNATIONAL FACTORING* 9 International factoring is a purchase of short term A/R resulting from foreign trade transactions on open account terms. The international factoring is intended for both - exporters (export factoring) and importers (import factoring). It is an alternative to other methods of export insurance and/or financing (for ex. documentary letter of credit, payment guarantee, export insurance, short term liquidity financing etc.). Participants in the international factoring are: An Exporter i.e. a Seller (also, commonly called a client or a supplier), a party that issues an invoice for delivery of goods or providing of services; An Importer i.e. a Debtor (also, commonly called a buyer or a client), a party that is liable to pay the A/R against the delivery of good or providing of services; An Export Factor, a bank or a specialized financial institution to which an exporter assigns its A/R under the factoring agreement; An Import Factor, a bank or a specialized financial institution to which an export factor assign A/R and which makes the collection from an importer i.e. a debtor. *Societe Generale - Splitska banka d.d. is a member of FCI (Factoring Chain International), the international factoring organization. It offers international factoring service following the standards and rules of that group (the so called two-factor system).

1. Export factoring 10 Another name for this product is complete- without recourse factoring. The product is intended for the exporters which sell their goods and services on foreign markets. Splitska banka appears in the capacity of the export factor in this transaction. In cooperation with the correspondent foreign factors which are FCI members too, it enables non-recourse factoring of A/R for exporters as well as insurance of the subject A/R. Export factoring advantages: Insurance of A/R s Exchange rate fluctuation protection Checking the credit worthiness of foreign buyers Collection of A/R on world markets (particularly favorable if you export in more countries) Financing - disbursement of a portion of an invoice (70%-90%), prior to its maturity Increase of the financial capacity for business expansion FOREIGN FACTOR (import factor) 1 5 SPLITSKA BANKA (export factor) 4 2 3 6 DEBTOR (importer) SELLER (exporter) 1. Risk insurance and collecton 2. Assignment of a/r s 3. Disbursement of advance reduced by discount 4. Invoice payment at maturuty 5. Transfer of collected amount 6. Disbursement of the remaining invoice amount

2. Import factoring The import factoring is the process reversed to export factoring: the Bank has the role of the import factor and it collects the A/R from a Croatian company - an importer (collection service), which ensures collection of A/R s to a foreign supplier. The factoring, as a form of short term financing, is very developed in the 11 world. The factoring transactions volume exceed several tens of billions Euro p.a.. Foreign companies have well established cooperation with their factoring companies and they prefer to use factoring, as a form of financing and insuring of their export, particularly when it comes to new and unknown buyers. Benefits for importers: Easier access to foreign suppliers market Providing additional security for their buyers by checking the credit worthiness and by insuring the payment Longer payment terms approved by suppliers FOREIGN FACTOR (export factor) 1 4 SPLITSKA BANKA (import factor) 5 2 3 SELLER (foreign supplier) DEBTOR (importer) 1. Import factoring request 2. Checking the importer s credit worthiness; signing of assignment of a/r 3. Invoice payment at maturity 4. Transfer of collected amount 5. Disbursement of collected amount DISCOUNT OF BILL OF EXCHANGE Splitska banka offers a service of BoE 4 discount, which enables to BoE holder to cash in BoE value before its maturity. If the BoE debtor is estimated by the Bank as a credit worthy company, the Bank 4 Bill of Exchange will disburse to the BoE seller the face value discounted for the amount of interests and fee. If you have a BoE which you want to be discounted, please contact Factoring Department.

FORFEITING 12 In respond to the requirements and needs of the Croatian exporters, we introduced a new product in our Bank s offer, purchase of A/R based on documentary L/C with deferred payment. Another name for this type of A/R purchase is forfeiting. Forfeiting is a purchase of debtors instruments and A/R - without recourse. The A/R which areforfeited should be: irrevocable, unconditional and transferable. An A/R forfeiter purchases the A/R in 100% value, decreased by the discount and contracted fee. Forfeiting advantages are: Protection against country risk, payment risk and exchange rate risk Liquidation of A/R which fall due in longer periods of time Speeding up of cash flow which enables the further sale growth Improvement of liquidity, financial stability and indebtedness indicators Important! We can forfeit only that documentary L/Cs with deferred payment, which are domiciled (which can be collected) at Splitska banka. L/C ISSUING BANK 1 4 7 SPLITSKA BANKA (domiciled bank) 6 3 5 FOREIGN BUYER (importer) 2 CROATIAN EXPORTER 1. L/C opening with deferred payment 2. Delivery of goods 3. Documents presentation 4. Acceptance of documents and payment liability 5. Disbursement of discounted amount of document (delivery) value 6. Payment at maturity 7. Payment of liability under L/C

A Buyer of goods /Applicant i.e. a Principal - the buyer of goods appears in two legal relationships and that is: once as the buyer in the basic (commercial) relationship towards the seller and the second time as the applicant in relation to L/C issuing bank with the request for L/C opening. A Seller (a beneficiary) - the seller of goods or the service provider appears in the capacity of the L/C beneficiary which should present the documents indicated in the L/C to the Bank. A Letter of Credit with Deferred Payment - the L/C under which the L/C issuing bank and/or the L/C confirming bank takes over the liability of deferred payment at maturity, as per the L/C terms. 13 An Issuing bank - the Bank which issues the L/C at the request of the applicant or for its own account. A Nominated Bank - i.e. a domiciled bank; every bank, except the issuing bank, with which the L/C is available or any other bank in case when the L/C is available with any other bank. Confirmation - implies the liability undertaken by the confirming bank, added to the liability of the issuing bank, that the L/C will be honored or negotiated following the orderly presentation of documents.

KONTAKTI 14 Societe Generale - Splitska banka d.d. Factoring department Ulica grada Vukovara 284/XIII 10000 Zagreb E-mail: factoring@splitskabanka.hr Fax: 021/433-100 Manager - Factoring Department Ivan Vuković Phone: 01/6327 674 Deputy Manager - Factoring Department Nives Rudež Phone: 01/6327 405 International Factoring and Forfeiting Officer: Tomislav Vojak Phone: 01/6327 945 Domestic Factoring Officers Silvio Markulin Phone: 01/6327 504 Branko Lesjak Phone: 01/6327 607 www.splitskabanka.hr