Subject:
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Re: Suspension of UK factoring services (was Re: Suspension of English factoring services
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Newsgroups:
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lugnet.market.services
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Date:
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Thu, 23 Mar 2000 09:50:36 GMT
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Viewed:
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1845 times
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Scott A <s.arthur@hw.ac.uk> wrote:
> I feel I have not "gained". The buyers who use the service, at their • choice,
> to pay me may well have gained through lower transferral charges (although • I
> know this may not be the case). When I sell an item, I set a price. The
> buyer must get that money to me using a method which is acceptable to me. • I
> do not see how I am gaining in any way. I'd appreciate some clarification • on
> this.
Using the factoring service you're actually transferring the exchange rate
risk from yourself to the factoree. A very simple example: you sell an item
to an US friend, I mean straight sale. You both agree on a price in USD
you're happy with. When you the seller say the price is ok it's because you
converted it in your own currency and you feel it's a fair amount of money.
But what happens if when the money actually arrives the exchange rate
changed a lot and you get a smaller amount in pounds you would have liked?
Do you refuse to ship the item? Do you ask the buyer for some more money?
The factoring service amplifies the problem because there's a large delay
between the buyer-seller agreement and the actual financial flow (and its
conversion). The problem simply exhists and we must face it. It would be a
minor problem if the import-export flows match in quantity, but we all know
this is not the case. There are many reasons for the Europeans sell more
than what they buy in the US.
Some possible solutions:
- The factoree take the risk. I go this way for very small transactions and
occasional users. I don't care of fluctuations on small amounts and in the
long term they usually balance.
- The seller take the risk. The factoree and the seller agree on the
transfer of the risk to the latter. There are many ways to do this, mainly
transferring the money at a standard agreed rate and adjusting it later when
the factoree actually receive the money.
- The buyer take the risk. After all the buyer's saving some money and some
time, so he could accept a small overprice to cover a possible loss due to
exchange rates. This is a bit unpractical and difficult to explain to the
buyers.
- The risk is cancelled at some cost. We're entering the maze of the
financial matter. The principle is you should subscribe a financial
operation for same the expiry date, amount and currency but opposed
direction to compensate the first one. Unfortunately this very standard
financial operations (swaps, puts, calls) are off the limits of our homely
managed service. Unless you are processing a VERY large lot of Lego :-)
Mario
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