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01.06.2016

Reverse factoring at OTP Bank

Reverse factoring (for some other factors it is called “purchase”) was developed to attract large buyers And retail chains. If, with classic direct factoring, the factor (bank / financial agent) enters into an agreement only with the supplier, and the buyers sign only a notice and do not bear additional obligations to the factor, except for the obligations stipulated by law, then with reverse factoring, the client of the factor is precisely the buyer who attracts the factoring your suppliers. Classic factoring is usually convenient for replenishment working capital suppliers, and the reverse one is for buyers in the transaction. The fact is that classic factoring is not always suitable for suppliers belonging to the segments of medium and small businesses. After all, business has changed a lot over the past ten years, and conditions on the trade market are often dictated by large wholesale buyers goods (retail chains). Retail chains and large buyers usually have many suppliers, and many of them due to volume. production and revenue are simply not interesting for factors to attract to classical factoring. When working with reverse factoring, factors usually enter into agreements with both a large buyer and its supplier, and the agreement with the supplier usually regulates exclusively the form of provision of financing and the amount of commissions. The contract with the buyer, on the other hand, is more extensive and usually includes the procedure for confirming deliveries and the buyer's responsibility to pay for these confirmed deliveries to the factor. In most cases, factors sign more extensive contracts with both the supplier and the buyer. These contracts may contain as many conditions and services as the buyer needs to work comfortably with his suppliers, including providing the factor with an additional deferment in addition to the deferment under the supply agreement, a commission for which the buyer usually pays. Reverse factoring differs from classical factoring not only in the number of contracts and the buyer’s responsibility for fulfilling the requirements assigned to the factor, but also in the policy of accepting risk on counterparties. If in classical factoring with recourse the factor takes the risk based on the size and financial stability of the supplier, then in reverse factoring, on the contrary,

factor assumes the main risk only on the buyer.

It should be noted that the division from the point of view of risk taking is rather conditional

character. Many factors now when accepting suppliers and buyers carry out a full

risk assessment for both counterparties and set a general limit for each organization under consideration, without being tied to a specific transaction.

Factoring has been around at OTP Bank for a short time, and at the beginning of this year the first financing was carried out within the framework of the Reverse Factoring product. The product diagram looks like the picture below.

The presented scheme is only the first stage and the first implemented business case for servicing one combination of a large buyer and supplier. In the future, more flexible payment schemes for factor commissions and schemes will be implemented without providing the buyer with an additional deferment.

When implementing the implemented case, we carried out the following actions:

1. An agreement has been signed with the buyer, which states:

Regulating confirmation of receipt of deliveries by the buyer and payment within the agreed time frame;

The fact of notifying the buyer about the assignment of claims under the terms of the contract (no separate notification is required, as with classic factoring);

The buyer is responsible for payment for supplies, invalidity of monetary claims assigned to the factor and commodity disputes;

The buyer receives an additional deferment from the bank, for which he pays a commission. In this case, the buyer is not required to open a current account with a bank, since the bank opens special accounts for the buyer, which are used exclusively to pay off supplies and commissions.

2. An agreement has been signed with the supplier, which specifies:

Conditions for providing financing, including sending registers of supplies for financing, signed by electronic signature, using the bank’s remote banking system;

Liability for invalidity of assigned supplies.

When working in reverse factoring with a supplier, the factors usually enter into a simplified

version of the contract, since although the factor’s client is essentially the buyer, financing is still provided to the supplier, so the factor must also have some contractual obligations in relation to the supplier.

On at the moment At OTP Bank, more than 40 different options for charging commissions when working on reverse factoring are at the implementation stage, which differ from each other in terms of collection periods and the object of collection.

Reverse factoring has been a full-fledged participant in the pool of factoring products for almost everyone for more than five years Russian factors and is actively developing, gradually gaining popularity at the expense of large buyers, including retail chains.

This is a type of factoring in which all parties to a purchase and sale transaction are located within Russia.

UniCredit Bank provides:

• recourse factoring with the client’s obligation to repay the debt to the bank if it cannot be reimbursed by the debtor;
• non-recourse factoring without the obligation of such compensation;
• pre-delivery factoring - financing at the stage of ordering goods;
• factoring with extended payment deferment;
• forfaiting is the purchase of long-term payment obligations of the client to the supplier / creditor.

Contact the bank's specialists to find out what package of documents will be required to start internal factoring services at UniCredit Bank.

Factoring for supplier financing

The supplier financing program developed at UniCredit Bank will help you:

• strengthen relationships with your supplier network and expect lower purchasing costs;
• obtain or increase deferred payment for supplies;
• simplify the chain of interaction with suppliers - you communicate with one bank specialist accompanying your company, and not with a dozen representatives of different suppliers;
• remove some of the work from the accounting department - the bank makes an early payment directly to the supplier’s account;
• remove the need to divert working capital to pay for supplies;

How does this work?

If you deal with suppliers on a deferred payment basis, this usually means that the supplier includes all costs associated with your receivables in the cost of delivery.

Under the supply financing program, UniCredit Bank purchases the right of monetary claim against you from your suppliers. For the supplier, this means that they can obtain low-cost financing for your receivables through factoring - rather than having to cover the cash gap through unprofitable lending from their bank. And for you, this means that you will be able to ask for a lower purchase price from this supplier and give him guarantees for long-term cooperation.

Moreover, your chain of interaction with suppliers is significantly reduced, planning cash flows becomes more efficient and purchasing power increases.

What terms of cooperation can your company count on under the supply financing program? Find out by contacting bank specialists or filling out.

Factoring with recourse

With recourse factoring, the bank has two sources of debt repayment in the event of non-payment by the debtor - the buyer and the seller. This reduces the risks taken by the factor, so the bank can expand the range of clients to provide factoring services.

As a client of UniCredit Bank, you can enjoy all the benefits of factoring with recourse:

• attract financing for factoring up to 90% of the total transaction amount;
• obtain faster and more profitable financing for the deferred payment period compared to lending;
• establish yourself as a reliable partner in working with suppliers, reducing the time for paying invoices for supplies;
• effectively manage accounts receivable and enlist the bank’s analytical support in this matter.

Factoring without recourse

The largest Russian and foreign companies are serviced under a non-recourse factoring scheme, in which UniCredit Bank fully assumes the risk of non-payment of debt by the buyer. Take advantage of a range of non-recourse factoring services to:

• increase liquidity and improve financial performance by writing off accounts receivable from the organization’s balance sheet;
• increase purchasing power;
• reduce the amount of working capital;
• improve the debt to EBITDA ratio.

To find out what conditions for the provision of this service you can count on in our bank, contact the specialists of UniCredit Bank or fill out.

Factoring with an extended deferred payment period

UniCredit Bank allows its factoring clients to receive an additional deferred payment in addition to the contractual one. In this case, the cost of the additional deferment is paid by the party acting as the debtor in the transaction.

Pre-delivery factoring

Pre-delivery factoring is financing against the assignment of monetary claims that will arise in the future. This type of factoring is in demand by enterprises that sell and produce goods “to order”.

Pre-delivery factoring allows you to:

• refuse prepayment work in favor of deferred payment;
• receive immediate financing for future sales of services and goods, as well as for the production of these goods.

This type of factoring requires an in-depth analysis of the activities of both the seller and the buyer. After the analysis, the bank’s expert will conclude which financing conditions will create the best balance between the bank’s risks and the client’s needs for factoring financing.

Forfaiting

Forfaiting is financial service similar to factoring. However, this means that the client receives financing by purchasing from him the long-term obligations of the debtor to the counterparty (supplier, creditor, etc.)

Forfaiting allows you to:

• discount the total amount of debt with one amount;
• obtain long-term financing for up to 7 years for the purchase of fixed assets;
• transfer the entire risk of non-payment of debt under the contract to the Bank;

Please contact UniCredit Bank specialists to get more information about forfeiting or fill out.

An unstable financial situation primarily affects small and medium-sized businesses, whose owners must resort to various financial manipulations to maintain profitable relationships with suppliers. In order to avoid falling into a debt trap and maintain their reputation, many clients of OTP Bank decide to use a profitable range of services called “factoring”.

What is factoring?

In simple words, “factoring” is a banking operation in which a financial institution assumes the monetary claim presented to the debtor and also collects the debt in favor of the creditor. There are three parties involved in this financial chain:

1. A factor is a banking structure “OTP” that carries out the operation and acts as a communication link between the debtor and the creditor.
2. The debtor is the buyer.
3. Lender is a supplier of goods (services).

The mechanism of this operation has been brought to automaticity. The bank client prepares documents confirming the existence of a monetary debt on the part of the debtor. Having accepted and studied the papers provided by the creditor, the bank repays the debt within 80-90%. At the same time, bank employees contact the debtor to discuss the terms of the agreement: during what period the factor will receive back all loan funds, taking into account commissions.

OTP Bank acts as an intermediary in factoring and, of course, provides its services for a fee. However, the amount of the commission fee is not fixed. The commission amount is specified in individually with the debtor and depends on the scale of the transaction.

Factoring allows clients who are facing financial difficulties to increase the liquidity of the enterprise, and also has a positive effect on solvency. In addition, this operation is one of the most efficient and profitable ways to solve the problem of lack of working capital.

The creditor, having chosen this operation, must understand that the bank cannot immediately pay the debtor’s debt in full. Typically, the payment amount does not exceed 80% of the total debt. Reimbursement of the remaining debt is carried out after 100% payment of funds by the borrower and receipt of money in the account of the factor bank.

Factoring is an operation during the implementation of which accompanying legal or insurance services. Also one of advantageous features factoring is the ability to conclude a financial agreement without the participation of guarantors.

To apply for the procedure, the lender must prepare a minimum package of documents: copies of foundation documents; complete accounting report; debtor's contact information. From the moment the application is received, OTP Bank controls all stages of the factoring transaction.

Advantages of factoring at OTP Bank

OTP Bank successfully carries out factoring operations on mutually beneficial terms. When signing a cooperation agreement, all nuances are taken into account. Years of work in this area were able to bring this service to highest level, the advantages of which are obvious:

1. Payment of financing up to 90% of the total transaction amount.
2. Possibility to defer payment by 180 calendar days, while additionally activating a grace period for waiting for payment for 30 calendar days.
3. Quick review of available limits.
4. Using exclusively electronic document management, thanks to which the bank can maintain contact with the client remotely.
5. A transparent approach to calculating commissions taking into account the client’s financial capabilities.
6. Ability to manage accounts receivable at the administrative level.

To get detailed advice on factoring, you need to contact one of the branches of OTP Bank. You can select the nearest branch and get acquainted with its work schedule. You can also call the phone numbers indicated in the table for any questions you have.

It is noteworthy that all factoring transactions are concluded in the national currency: the Russian ruble. And both the debtor and the creditor can initiate the signing of an agreement of this type, since cooperation in such a format is often almost the only option to reach a compromise in the shortest possible time.

Factoring from OTP is a unique service that allows you to resolve a difficult financial situation with benefits for all parties: the intermediary bank receives a commission for services; the creditor receives in the shortest possible time cash; the debtor retains his working reputation and receives a kind of deferment to resolve difficulties.