Factoring
DEFINITION OF FACTORING
Factoring is a common financial practice used in the trade financing industry that can be applied to both domestic imports where by one party called factor advances the payments of imports to a third party called provider on behalf of the local importer for a pre agreed fee. The transaction is supported with a credit insurance to mitigate the probability of default.
Description
DEFINITION OF FACTORING
In the absence of banking intermediation, importers of essential food/raw materials in Lebanon
encounter difficulties in securing financing to import goods into Lebanon.
Usually, essential food/raw material is imported through a letter of credit (L/C) mechanism that guarantees the payment to the supplier abroad and guarantees the shipment and delivery to the importer in Lebanon. After the crisis in October 2019, this double assurance is essentially nonexistent.
A forward arrangement, which allows importers to place a spot order and receive their shipment in a few months, is a common practice in importing food supplies and other necessities. Due to the lack of a financial guarantor, the majority of Lebanese importers are now unable to open L/Cs at their banks.
• LTSisestablishedtoactasabrokerintheproposedstructureoftheFactoringfacility.
• LTSwillcommunicatewiththefactors (regionalandinternationaltradefinancecompaniesthatpays uppliers’ invoices for later reimbursement by the ultimate local buyer), acting as a combined financial guarantee mechanism to pay the importer’s invoice at a fee mitigated by a credit insurance policy.
• LTS will serve as a commercial intermediary To connect the Lebanese importer and the factor. It will only admit importers who, preferably with per-agreed sales contracts in the Lebanese market, import and sell food supplies and food raw material without further processing during the initial phase.
• LTS is a brokerage firm with a focus on food and raw material factoring.
• LTS will act as an intermediary between the Lebanese importer, the factor, and the credit insurance company. It does not provide any credit facilities, credit enhancement, or credit remedial actions in the factoring transaction.
Usually, essential food/raw material is imported through a letter of credit (L/C) mechanism that guarantees the payment to the supplier abroad and guarantees the shipment and delivery to the importer in Lebanon. After the crisis in October 2019, this double assurance is essentially nonexistent.
A forward arrangement, which allows importers to place a spot order and receive their shipment in a few months, is a common practice in importing food supplies and other necessities. Due to the lack of a financial guarantor, the majority of Lebanese importers are now unable to open L/Cs at their banks.
• LTSisestablishedtoactasabrokerintheproposedstructureoftheFactoringfacility.
• LTSwillcommunicatewiththefactors (regionalandinternationaltradefinancecompaniesthatpays uppliers’ invoices for later reimbursement by the ultimate local buyer), acting as a combined financial guarantee mechanism to pay the importer’s invoice at a fee mitigated by a credit insurance policy.
• LTS will serve as a commercial intermediary To connect the Lebanese importer and the factor. It will only admit importers who, preferably with per-agreed sales contracts in the Lebanese market, import and sell food supplies and food raw material without further processing during the initial phase.
• LTS is a brokerage firm with a focus on food and raw material factoring.
• LTS will act as an intermediary between the Lebanese importer, the factor, and the credit insurance company. It does not provide any credit facilities, credit enhancement, or credit remedial actions in the factoring transaction.