About Factoring

WHAT IS FACTORING?

Factoring is a financial service, which includes:

• Financing based on the Borrower's receivables on goods and services, i.e. - based on the payments due by the Clients of the Borrower
• Managing the accounts receivables of the Borrower
• Stimulating the growth of trade turnover between the Borrower and its Clients

The combination of these three components is the main advantage of factoring over traditional crediting.

In contrast to the other forms of financing based on real assets, in factoring the receivables are obtained by UniCredit Factoring. This means that the ownership of the receivables is transferred from the supplier of goods and services to UniCredit Factoring.

Comparison of Short Term Lending process and Factoring Process

Short Term Lending process

Based on Borrower's creditworthiness

Follows classical risk approach

• Borrower's financial statements
• Borrower's past relationship
• credit scoring
• collateral requirement, promissory note e.t.c.

Factoring process

Risk assessment takes into consideration:

• The trade flows and the possibility for their stimulation
• The quality and history of the relationships between the Borrower and its Clients
• Does not require collateral, promissory note e.t.c.

What Types of Factoring are existing?

According to its different components, the types of factoring are as follows:

• According to the type of risk:
  • With recourse - after the expiry of a certain period after maturity and in case of non-payment by the ultimate Debtor (Borrower's client), UniCredit Factoring has the right to turn to the Borrower for the recovery of the advanced amounts.
  • Without recourse
• According to the participating parties in the transaction
  • Domestic- both the Borrower and the Debtor are Bulgarian legal entities or they operate/ issue invoices on the territory of Bulgaria
  • nternational
    • Export
    • Import
  • According to the differed payment period:
    • Short-term - up to 30 days
    • Medium-term - from 30 to 120 days
    • Long-term - up to 120 days
  • According to the dynamics of the trade relationship:
    • Permanent - it is formed as a one-year- factoring line towards one or more Debtors
    • Single deals - in the case of big single transactions

For who is the factoring?

The companies for which factoring would be most appropriate and beneficial are:

• Manufacturers and trade companies, who implement regular supplies under the conditions of differed payment and issue invoices for their sales; they are located in Bulgaria and between them and their clients does not exist any kind of economic relatedness
• Their sales are under the conditions of differed payment
• The receivables are not transferred or pledged in favor of a third party
• The average turnover with the client exceeds BGN 100,000 on yearly basis
• The sales are with low percentage of credit notices and refusals for payment because of marketing bonuses, discounts e.t.c.

When Our Client may benefit from factoring?

• his company is growing
• his growth has been hampered by an inability to obtain adequate financing
• the company has credit worthy customers who pay invoices within terms and it wants to offer them better conditions
• it needs to spend less time in managing its receivables and spend more time in managing its business

What are the benefits of factoring for the Borrower ?

• It is not focused only on the Borrower and does not require collateral - relies also on the strength of its customers and the relationships between them
• Stimulates cash flow by avoiding the waiting for payment on invoices
• Allows to turn around orders quicker and increases production/supply volume
• Improves B/S by facilitating the reduction of debt
• Can provide alternative start up business financing solutions, reducing your need to rely on venture capital

What are the benefits of factoring for the Debtor/Buyer?

• Improved payment conditions
• Possibility for purchases under open account conditions
• Not necessary to open Letter of Credits
• The biggest benefit for the Buyer is the opportunity to provide flexibility to its business - optimization of the payment conditions without any additional expenses or administrative obstacles.