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Factoring

Factoring is account receivable financing service where Ūkio bankas assumes the obligation of collecting the seller’s invoices for goods sold or services rendered.

What companies does factoring suit best?

Factoring works well for start-ups as well as high-growth businesses which:

• give credit to their buyers;
• want to expand their business but lack financial resources;
• are short of working capital but cannot borrow funds because no property to secure the loan is available;
• cannot compete with companies offering better crediting terms to buyers;
• doubt in reliability and solvency of buyers.

What are the benefits of factoring?

• The company does not have to pledge property and saves time and money in relation to pledging, valuation and insurance of property.
• Simpler financing procedure compared to taking a loan. Even start-up businesses are eligible for this form of financing.
• Under factoring agreement no liability appears on the company's balance sheet. Factoring service gives the company an easy and convenient way to increase the limits of financing subject to current and future needs.
• The company may credit its customer without freezing own funds.
• The company receives payment for goods sold immediately after delivery instead of waiting for the buyer to sell them and therefore can plan cash flows more efficiently.
• With sufficient working capital the company can pay for raw materials in due time, avoid negotiating over payment terms and thus benefit from advance payment discounts.
• Good relationship with clients and partners is maintained which sometimes might be ruined as a result of overdue payments.
• The buyer’s settlement practice improves because the claim rights are realized by the bank, not by the seller.
• By transferring the buyers' debts to the bank debt collection costs are reduced and less time is spent dealing with settlement problems.
• Factoring helps to improve the company’s liquidity.

How does the factoring mechanism operate?

After the company, i. e. the buyer enters into the factoring agreement with the bank, all service operations are performed under the following scheme:

1. The seller sells goods to the buyer under the sale - purchase agreement.
2. The seller transfers the pecuniary claim to the bank against the seller’s invoice carrying the note that the right of claim is transferred to the bank.
3. The bank advances money to the seller (up to 90 percent of the invoiced amount), while the remaining amount of the invoice is reserved.
4. Upon the maturity of the credit period the seller shall pay the bank the invoice amount.
5. The bank transfers the remaining balance of the invoice to the seller.

What are the terms of factoring?

• The financed portion of the invoice is up to 90 percent.
• The maximum credit term for accounts receivable is up to 120 days.
• Invoices issued in the Litas, euros, US dollars or other currencies of the European Union states are accepted.
• All advance money is paid in the currency of the invoice or is converted into the currency requested by the client.
• Money may be advanced with recourse or without recourse. The Bank may ask for the insurance of accounts receivable.
• Factoring may not be used for financing of long-term liabilities, bad or doubtful debts, claims for challenged or overdue payment.

How much does it cost?

The factoring service includes the following costs:

• Agreed annual interest rate (similar to that of short-term loans).
• Handling fee – 0.45-0.9 percent of the invoice amount plus VAT. The minimum fee is specified in the factoring agreement.
• Limit fee – up to 1 percent of the advanced money limit.

If you consider using factoring services contact the nearest Ūkio bankas Branch or Client Service Unit. You may also send an inquiry via the internet.