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 10:50:41 GMT
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Viewed:
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1883 times
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"Mario Ferrari" <mario.ferrari@edis.it> wrote in message
news:FrvCvt.4y3@lugnet.com...
> 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 way I look at currency fluctuations is this like this: Each individual
transaction is undertaken on a micro temporal scale. I'd expect that, if I
do enough deals, in the fullness of time the imbalance will even out... ie
you win some, and you loose some. The problem is balances which build up
over months and years, as here the macro temporal currency fluctuations
will begin to bite - I'm talking here about long term gradual currency
shifts (eg euro versus US$). Take LP's $1k debt to SR as an example - if the
same debt had existed in January, the $1k would be worth 4-6% more to him as
the US$ has dropped from ~$1.65 to ~$1.57. However, in the coming months, Mr
Greenspan may (will?) up interest rates, the BofE may (I doubt it) lower
them and then the scales may flip the other way?
>
> 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.
This may work if you agree on a weighted average over time, rather that the
rate at that moment?
> - 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.
Yes, prices to buyer should remain "fixed" - unless the terms of the deal
say otherwise.
Scott A
> - 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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