Export Factoring

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factoringLAUDER BUSINESS SCHOOL

Export Factoring
Risk Management Seminar Paper
By

Berger Raziel, Fon Peter, Ikonomova Kalina, Muyambo Michael and Surpina Galina Submitted to

Prof. (FH) Christian Mehlich, PhD

i Table of Contents 1 2 3 Introduction ............................................................................................................................. 1 Trade Finance .......................................................................................................................... 2 Export Factoring ...................................................................................................................... 3 3.1 3.2 3.3 3.4 3.5 4 Background ...................................................................................................................... 3 Functions and Services of Export Factor Institutes .......................................................... 4 Reasons for Factoring....................................................................................................... 5 Types of Export Factoring................................................................................................ 6 Export Factoring process .................................................................................................. 8

Analysis of Export Factoring ................................................................................................... 9 4.1 4.2 Advantages of Factoring .................................................................................................. 9 Disadvantages and Risks of Factoring ........................................................................... 10

5 6

Conclusion ............................................................................................................................. 12 Bibliography .......................................................................................................................... 13

1

1

Introduction

The purpose of this seminar paper is to research about export factoring and its importance in the financial industry. Our goal is to obtain all relevant facts in order to develop a profound understanding of the topic. Thereby we are also aiming at delivering a scientifically- and practically relevant presentation of our findings in class. We will start off our research with some background information on export factoring and explain its incorporation in the financial market. A lot of emphasis is put on the term factoring in general since it comprises both, export- and import factoring. By this means we are hoping to introduce our audience in the upcoming presentation with all relevant information for gaining practically relevant insights. As we move one with our research we will also discuss functions and services of factoring institutions, types and reasons for factoring and compare their advantages and disadvantages. Finally we hope on coming to an insightful conclusion, that will drive us conducting deeper research on this and other related topics in the future.

2 2 Trade Finance

Since factoring is an instrument of trade finance it is important, first, to define the term trade finance. This helps viewing factoring in a larger context and discovering its purpose. There are multiple definitions as to what trade finance actually means. Trade finance is defined by Trade Finance Magazine as: “It is described both as a “science” and as “an imprecise term covering a number of different activities”. As is the nature of these things, both are accurate. In one form it is quite a precise science managing the capital required for international trade to flow. Yet within this science there are a wide range of tools at the financiers’ disposal, all of which determine how cash, credit, investments and other assets can be utilized for trade.”

As it is stated above the term comprises all financial activities in connection with trade. Hence, it consists of...
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