Page 107 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

International Trade Procedures and Documentation

Notes More friendly delivery terms offered, like direct delivery to the customer (as against DP/
DA) without any risk.
Reduced foreign bank handling charges on documents.

Substantial cost savings and complete freedom in monitoring and follow up (telephones,
faxes, follow-up visits) of receivables, overdue bank interest on delayed collections and
recovery expenses relating to bad debts.
Increase in export sales, thanks to more competitive terms offered to customers.
Better security than letters of credit.
Elimination of uncertainties relating to realization of accounts receivables resulting in
better cash management to meet working capital requirements.
Full attention to procurement/production, marketing and sales and growth of business,
due to freedom from chasing receivables.

Did u know? For banks, it would be a win-win situation all the way. Advances given
against ECGC-factored export receivables could become the most preferred export advance
portfolio for a bank, even better than the advances granted under an ILC. There is 100 per
cent credit protection, free of cost.
The other benefits for banks are:

Prompt and immediate payment by ECGC of the full amount outstanding on the receivables
to the bank, within three days of crystallization of the dues, in the event of non-realization
of factored receivables on the due date, without any protracted processing or scrutiny and
without raising any queries.
Savings on post-shipment guarantee premium to be paid to ECGC, if any.

No pre-disbursal risk assessment or post-disbursal monitoring required of the bank. Full
risk is on ECGC, with regard to repayment of the amount due (in rupees).
Opportunity to build ‘zero-risk assets’, since the bank would not run any risk on the
borrower, the country or on the buyer.
Banks could earn interest on a priority sector lending, without any of the attendant risks
or hassles.
Opportunity to satisfy additional working capital needs of the customer by sanctioning
additional limits without enlarging the exposure risks.

Banks would be furnished with a certified copy of the factoring agreement concluded between
the client and ECGC. When a limit is established by ECGC on an overseas customer in favour of
an exporter-client, the Corporation would directly communicate to the concerned bank branch
all relevant details of the limit available to the exporter on that specified overseas customer, and
would confirm in writing its obligations to the bank in respect of advances it may grant against
such ECGC-factored export receivables.
The bank’s role lies in encouraging exporter-customers to explore the possibility of availing of
the factoring facility from ECGC. Factoring, being a high-risk premium product, could be made
available only in respect of receivables due from select customers.
Banks may consider sanctioning of additional limits to exporters against risk-free advances
when ECGC communicates setting up of the factoring facility and the permitting limit in respect
of individual buyers.

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