Uakpaeva M.M.

Kostanai State University of A.Baitursynov, the Republic of Kazakhstan

Factoring is a key factor for business development

In today's business environment the purveyors are often forced to provide customers deferment of payment. Depending on the degree of the sold good's liquidity, the average credit period varies from 20-45 days. Advantages of trade credit to the buyer are obvious: there is no need to take out of significant amounts of money, as in the case of advance payment or payment upon, the buyer can schedule debt repayment schedule, as well as to minimize the risk of law-quality goods. However, the agreement of suppliers to provide trade credit leads to a reduction in current assets and the decline of the current liquidity of these companies, cash shortages and reduce financial stability, which ultimately has a negative impact on the profitability of the business and the volume of profits. The burden of debt is exacerbated if the buyer does not comply with terms specified in the contract. However, the increase in the provision or deferred payment is a major competitive advantage in the market, and sometimes the only argument that attracts buyers.

In an effort to prevent the occurrence of delinquent or bad debt providers conduct daily monitoring of accounts receivable. The most effective management of accounts receivable is possible with independent control, for example, by the factoring company. Factoring company checks payment discipline and reputation of buyers, monitors the timeliness of payment for the supply debtors, manages risks to and helps to build up limit and tariff policy [1].

The main task of factoring is providing a system of customer relationships, in which the supplier can provide competitive payment delay their clients without experiencing shortage of working capital. This is possible through early financing the supply of a deferred payment to factor in a convenient mode for the provider.

Funding is provided on the day when the airbill is invoiced for the shipped consignment. Size of prepayment makes up to 90% of the total supply. Cash balances minus the factor's commission returns after payment of delivery by the buyer. Thus, the supplier is able to plan their cash flow, regardless of the payment discipline of customers.

Factoring scheme is shown below [2].

Figure 1. Factoring scheme

There is a scheme of a factoring:

1. Delivery of goods on deferred payment.

2. Assignment of the debt claim to deliver to the Bank (or factors).

3. Financing (up to 90% of the delivered goods) immediately after delivery.

4. Payment for the delivered goods

5. Payment of the supply's residue less of commissions to factor.

Factoring is often compared to a bank loan, although these financial products designed to meet the different needs of suppliers. So, prepayments received under factoring services company, usually used to finance current operations and loans - as investment or innovative means.

Comparison factoring and bank loan is presented in table 1 [3].

As we can see factoring has advantages over credit. Under factoring, along with financing, the Bank managing receivables provider frees him from the analytical and practical work. Receiving from the bank exhaustive information employees can concentrate their efforts on the development of production, sales, market research, solving economic, organizational and other issues. It is important to note that when factoring bank covers the main risks supplier arising in shipments with a deferred payment - the risk of non-payment or delayed payment of delivery by the buyer.

Table 1. Comparison of banking products

Factoring	Bank loan
Factoring financing is repaid from the money received from client's debtors	Bank credit is paid back by the borrower
Factoring financing is paid for a period of actual delay of payment (up to 90 calendar days)	Loan is given for a fixed period, usually up to 1 year
Factoring financing is paid on the day of delivery	The loan is paid on the day specified in the contract
Factoring company's transition to cash and settlement services to the Bank is not required	The loan provides the borrower transition to cash and settlement services to the Bank
For factoring financing no collateral is required	The loan usually requires collateral
Size of the actual funding is not limited and can infinitely increase as sales customer	The loan is issued for an agreed amount
Factoring financing is repaid on the day of actual payment delivered goods by the debtor	The loan is repayable in advance due to the day
Factoring financing is paid automatically when available invoices	To obtain a loan you must draw a huge amount of documents.
Factoring financing continues indefinitely	Repayment of the loan does not guarantee a new loan
Factoring financing is accompanied by a service that includes: accounts receivable management, covering the risks associated with the supply on credit terms, consulting and so on	The Bank does not provide any additional services to the borrower when lending in addition to providing customer funds and cash management services

Using factoring allows companies to:

- increase the liquidity of receivables;

- eliminate cash gaps;

- insure risks associated with providing customers deferred payment;

- develop relationships with existing customers and attract new ones;

- expand its market share.

In more detail the advantages of factoring for the seller and buyer are presented in table 2 [3].

Table 2. Advantages of factoring

For the seller	For the buyer
1.Additional unsecured funding	1. More favorable payment terms that do not require the diversion of significant funds from the turnover in the case of prepaid or postpaid
2.Accelerated turnover of accounts receivable	2. Planning for debt repayment schedule
3.Reducing losses in the event of late payment by the buyer	3. Increase in purchasing power.
4.Simplify planning money circulation
5.Increase in turnover
6.Gain control over the payment of current liabilities
7.Ability to offer customers flexible payment terms
8.Timely payment of taxes

Estimation the efficiency of the use of factoring in companies shows all the advantages of this financial instrument. It is sufficient to analyze the growth in sales of goods when almost unlimited funding. Of course, bank fees for factoring reduces the amount of revenue from each particular delivery, but growth in the number of shipments increases the overall amount of revenue, and therefore have a positive effect on the absolute and relative performance of the company.

To date, factoring is used very successfully in the delivery of food, cosmetics and alcoholic products, stationery goods, consumer goods, medicines, household chemicals, etc. All these branches combine high liquidity products, as the demand for them is constant and high. However, it should be noted that factoring can be applied in all areas where there are constants trade connections and practiced delay of payment, clearing and settlement.

Literature:

1. Zverev V.A. Why the suppliers of products is needed factoring // Economist's Directory, № 10, 2007, p.121-127

2. Usolceva A.G. Development of factoring in modern conditions // STEZH, № 8, 2009, p.41-44

3. Web-site // www.1factoring.kz