Thursday 18 August 2011

Presentation of the documents

When presenting documents to any bank, it is recommend to add following minimum information in the cover letter.

1. Who you are : A Letter Head of the Company

2. What you are presenting - include in this the listing of documents presented, the letter of credit number, issuing bank, any other bank reference number you may have and the amount of your presentation.

3. Whom to contact in case of discrepancies or other needs.

4. How you are to be paid. (i.e. credit your account). You may also want to request negotiation or discount at this point.

5. Any instructions you want the bank to follow. (i.e. please let us know when documents are sent to issuing bank).

Taken fomr :LC Forum

Sunday 6 February 2011

Factoring Process

Meaning :
Factoring is a financial transaction whereby a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business.

Factoring Process :
1.Following your normal course of business, you sell your product or service to a customer, and issue an invoice for the value of the goods or service.
2.To factor the invoice, you follow the sale by sending the factor a copy of the invoice.
3.The factor processes the invoice, and within 24-28 hours, the factor gives you a percentage of the invoice amount, called an advance payment. This is the first of two payments you receive when factoring an invoice.
4.The customer, when ready to make payment, directs payment to the factor.
5.When payment is received, the factor withholds a small factoring service fee, and returns the difference, or reserve back to you.
6.The reserve is the second payment you receive from the factor for the invoice.

Benefits of Factoring
Increased cash flow!
Cash tied up in accounts receivable is now in your hand to fuel business growth.

•Faster growth.
Eliminating the need to wait for customers to pay speeds up your business cycle.

Improved financial position.
Factoring frees up cash for you to reinvest in your company and reduce debt.

•Combat seasonality.
Factoring allows you to smooth out cash flow peaks and valleys.

•Not a form of equity.
Factoring does not require a transfer or dilution of ownership.

•Not a loan or form of debt.
Factoring will not affect your balance sheet negatively.

•Flexibility.
You decide how much and how often you want to factor.