Factoring is a process of issuing international loans by a specialized financial company through buying the importer's indebtedness to the exporter and its encashment. Regular delays in payments and the exporters' growing need in loans have caused rapid development of factoring companies. The predecessors of these companies were merchants, who specialized in merchandise factoring acting as sales representatives of manufacturers on new markets. Financial factoring appeared in 1890 in USA due to introduction of protective duties for textile aimed at reducing its import from Europe. Financial factoring has been rapidly developing since World War II.

When a factoring company transfers the money to the exporter it is granting him a loan. Sum of this loan varies from 70 to 90 percent of the sum indicated in the invoice depending on the client's creditworthiness. The balance of 10-30 percent is transferred to the client's blocked account after deducting interest to be paid in accordance with the loan agreement and the company's commission. Funds kept on this account are used for covering possible commercial risks the company hasn't accepted (low quality of the goods, price disputes and so forth). After the buyer repays its debts the company liquidates the blocked account and returns the client the balance of money.

When buying indebtedness a factoring company usually uses open cession: it informs the buyer about transfer of the indebtedness; closed cession is used very seldom and means that the buyer is kept uninformed. Interest paid for factoring credit usually exceeds the official interest rate by 2-4 percent thus ensuring high profits of factoring companies. In spite of the relatively high costs the exporter is interested in factoring because it is usually accompanied by enchashment, trust and other services. Loans are extended for periods up to 120 days. Factoring agreement increases creditworthiness of the exporter company and simplifies the procedure of obtaining loans from banks.

The exporter company is obliged to transfer all requirements related to realization of the goods to the factoring company. The latter buys the indebtedness and keeps accounts of debtors and creditors. Owing to factoring services the firm does not work with separate buyers - it deals with the factoring company, which regularly provides the client with account statements in exchange for its remuneration. The company charges a commission agreed previously (0.5-2 percent of the client's turnover) depending on the reliability of buyers, type of services, quality of debts along with interest for loans secured by these debts. Factoring companies carry out thorough check of the debts being purchased from the point of view of the buyer's creditworthiness with the help of their investigation departments and banks. Sometimes these companies take the risks of the debts remaining unpaid including financial risks connected with the importer's insolvency. Except for credit, accounting and control operations factoring companies extend legal, warehouse, information and consulting services. They have information about world markets. Information resources are available due to close business relations with banks, which usually initiate creation of factoring companies and render them financial support.

Like the world economy on the whole the described sphere is affected by concentration and centralization processes. 37 factoring companies from 18 countries are included in the Factors Chain International Association. The Association's headquarters are located in Amsterdam. In 1986 the Association's members approved the Code of Mutual Factoring Customs relating to foreign trade.

Factoring is most favorable for big exporter companies with solid clientele, considerable delays of payments and insufficient cash resources. Factoring services give them the following advantages: eliminating the risk of default of payment, early realization of the debt portfolio, simplifying the structure of the balance sheet, reducing the period of the encahsment of the clients' requirements (by 15-20 percent on average), reducing accounting, administrative and other expenses because factoring companies provide high-quality service of settlement operations and so forth. All this promotes acceleration of the capital turnover, reducing the circulation costs, development of the exporter companies' expansion and increasing their profits.