Cross Selling by Banks-Part II

This is the second and concluding part of the article.

Benefits of cross selling:  In cross selling, Bank is essentially leveraging its relationship with an existing customer, to generate new business, and consequently earn more income, and profits.

The following are some of the beneifts of cross selling by Banks:

It is economical:  Cross selling results in cost-cutting.   The Bank incurs less expenditure in cultivating an existing customer than in acquiring a new one.   The Bank is relieved of the work associated with opening a new account, with all the attendent procedures with regard to KYC norms etc.   On the other hand,  Bank is familiar with the background and the prospects of an existing customer.

Economies of Scale:  With an existing customer it is easier for the Bank to offer a variety of products and services needed by the customer.   Communicating to a existing customer is relatively easy.   It is also easier for the Bank, because of familiarity with the customer, to structure a combination of products required by him, at an attractive cost.   Economie of scale can be achieved customer-wise, to reduce the overall cost to the Bank.

Relationship Building:  By tapping the existing pool of customers, and consolidating the relationship with them, with the help of a slew of products and services, Bank can build up a solid relationship with the existing pool of customers, who would stay with the Bank long term.   And also bring in new ones.

Advertising and Publicity:  When a customer avails of several services from the Bank, he becomes a source of word of mouth publicity and advertising, for the Bank.   The will help the Bank garner more business, apart from reducing expenditure.

Multiple Revenue Streams:  Multiple services offered by the Bank result in the generation of multiple streams of income.   As incomes and revenues from different sources are not uniform throughout the year, this strategy of offering multiple services to existing customers will ensure a steady flow of income to the Bank.

Branding:  Cross selling of Bank products and services leads to more visibility of the Bank, and add to the brand value of the institution.   Brand building, being a critical function for long term success of an institution, the existing cusomter is a very convinient vehicle to spread the message of the Bank.

Retention of Customers:  In the competitive environment that businesses are operating today, it is equally important to retain existing customers, as it is to acquire new ones.   Offering a bundle of products and services, at competitive rates, to existing customers, will help in retaining them.

Profitability:  In view of the benefits of cross selling discussed above, if cross selling is executed as a business strategy, with proper planning, and care, it is bound to increase the profitability of the Bank.

                                                                                                                   Concluded.

Cross Selling by Banks-Part I

The worldwide economic slump has created a situation where Banks and Financial Institutions find themselves in an unenviable position.   On the one hand, they are unble to lend freely as before, for fear of being landed with bad loans, for which they are already in the dock.   On the other hand, their own position is not any better than the corporates that they lent to.   Many of the biggest names in Banking are now living and managing on Government funds.

The current economic crisis has thrown up challenges that are difficult to beat, with conventional strategies.   New ideas, and new innovations need to be promoted to remain in business, and make profits.   Apart from new ideas, Banks should also revisit some old ideas that they may have ignored in their pursuit of zany and sophisticated sounding businesses like derivatives etc.   One such idea is the concept of “cross selling”.

Cross Selling:  Cross selling refers to the activity of garnering more business from an existing customer, in addition to the one he is availing presently.   Often, we come across a Bank customer, who has a deposit account with one Bank, and a loan facility with another.   Or a customer who has a personal loan with one Bank, and a Credit Card of another Bank.  

The idea behing cross selling is to target such customers, to structure a range of products, and at such prices,  that it becomes attractive and viable for the customer, to avail of al his banking needs at one place.  

Let us take the typical case of a family of four, comprising of husband, wife and two children.   Let us assume the husband is a Executive in a Printing Firm, the wife is a home maker, and the two children go to school.

In a case like this, the family may need one or more of the following banking services:

1. Savings accounts for all the family members.
2. Recurring deposits in the names of the children, to inculcate the saving habit, apart from such accounts for the parents also.
3. Fixed deposits for lumpsum amounts, from time to time, in the names of the family members.
4. A home loan facility for purchase or construction of a family home.
5. A consumer loan for acquisition of consumer durables, and furniture, etc, for the home.
6. A car loan for the family car.
7. Personal loans for the parents to meet any exigencies.
8. Credit cards for the parents.
9. An Educational loan for the childrens’ education.
10. Travel loans for the family to go on holiday.
11. If the wife is interested in pursuing any home based business, then a suitable loan may be considered.

The above list of services that a Bank can offer to a typical family gives an idea of how many income streams can be created with an existing custome, with who the Banks is familiar, and conversant with his financial dealings, social status, and credit history.  

In the same way, the customer is also familiar with the Bank, and once he is satisfied with the services availed of by him, he would be prepared to shift all his business to a particular Bank.   This will result in building a strong relationship between the customer and the Bank, for mutual benefit.

                                                                                                    To be concluded.

Marine Insurance in International Trade-Part VI

In this concluding article on Marine Insurance, we take a look at the remaining Institute Cargo Clauses, that deal with the extent of insurance coverage offered.

Institute Cargo Clauses B:  Compared to the clauses A, clauses B is more restrictive in its coverage.   As a matter of fact, it occupies the middle ground between clauses A and C, being the least and the most restrictive, respectively.

Clauses B offers coverage for:

1)  Fire and Explosion:  Loss or damage suffered by the cargo on account of fire and explosions  are insurable and eligible for claims under this clause.

2)  Sinking etc:  Loss or damage to the cargo resulting from the sinking, grounding, capsizing, etc., of the vessel is covered under this clause.

3)  Collision, etc:  Collision of the ship with another, or other objects, other than water, resultig in loss or damage to the cargo is covered under clauses B policy.

4)  Discharge Loss: The risk of cargo being discharged at a port of distress is eligible for coverage.

5)  Other losses:  Loss or damage to the cargo in transit abroad any land conveyance or transport is eligible to be covered for the risks associated therewith.

6)  Washing Overboard:  Loss or damage on account of cargo getting washed overboard is eligible for coverage.

7)  Water Seepage:  Entry of water into the vessel, etc., thereby causing loss or damage to the cargo, is covered under the clauses B.

8)  Loading/Unloading:  Loss or damage caused in the process of loading and unloading of the cargo is covered under this clauses B.

9)  General Average Sacrifice:  Loss or damage suffered by the insured on account of application of the rule of General Average Sacrifice, in relation to the value of the cargo saved, is also covered under the clauses B policy.

10)  Jettison:  The loss or damage suffered by the assured on account of jettison of his cargo can be covered under the clauses B policy.

In addition to the above coverage, the B clauses policy also affords additional coverage for loss or damage that can be “reasonably attributable to”: Earthquake, Volcanic eruption or lightening.  

Exclusions:  The Institute Cargo Clauses B policies do not include coverage for the loss or damage accruing to the assured on account of theft, shortage, or non delivery of the goods.

Even though the clauses B policies provide greater coverage compared to the clauses C policies, yet it is useful only for certain types of cargo, on account of its restrictions.

Institute Cargo Clauses C:  Clauses C policies offer the least coverage on account of the highly restrictive scope of these policies.

Clauses C policies offer coverage for the following risks, but with the rider of “reasonably attributable to”.  

1) Fire and Explosion.

2)  Sinking of ship etc.

3)  Collision of ship etc.

4)  Cargo discharged.

5)  Transit Losses.

6)  General Average Sacrifice.

7)  Jettison.

  Exclusions:  Clauses C policies do not offer coverage to losses or damages suffered on account of Earthquakes, volcanic eruptions or lightening.   Also exluded are risks like cargo being washed overboard, entry of sea water into the ship and resultant loss or damage etc.

Conclusion:  Insurance obtained under any of the above three Institute Cargo Clauses is subject to respective exclusions.   In spite of that, it is necessary to obtain insurance for the cargo, in view of the uncertainties and dangers posed at various stages of the journey of the cargo.

Further, the enormous protection enjoyed by the carriers under various national and international rules and conventions, gives them ample opportunity to bail themselves out of tough situations, leaving the shippers high and dry.   Even where the carriers are liable to compensate the shippers, such liability is limited in scope and quantum.   It is for these reasons that it is important to obtain insurance and play it safe.

Marine Insurance in International Trade-Part V

In this article, we shall study what is the Institute Cargo Clauses, and what it covers.

Institute Cargo Clauses:  Historically, London has been the center for marine insurance business, and many of the customs and practices, as well as guidelines relating to this trade have originated from here.

Of  such guidelines, one of the most important one  relates to the extent of risk coverage offered by various marine insurance policies, as laid down in the Institute Cargo Clauses, A, B, and C.   These guidelines have been accepted by several marine insurance organizations across the globe.   The risks covered under these clauses, and the exclusions thereof, are discussed below.

Institute Cargo Clauses-A:  This clause provides the maximum coverage against the risk of loss or damage to the insured cargo.   Because of its very wide scope and application, it is also called “all risks” coverage.

The coverage offered by this type of policy includes loss or damage by fire and explosions, that are not so rare on ships.   It covers the risk of the ship being sunk, grounded, stranded, etc.   Also covered here is the risk of collision between two vessels, the discharge of cargo at a port of distress etc.   That apart, it also covers loss or damage on account of jettisoning of the cargo.   As can be seen, the coverage offered under clause A is quite comprehensive.

Exclusions:  The following are the exlusions applicable to Clause A.

1)  Willful Misconduct:  Willful misconduct of the assured in relation to the insured cargo may nullify the policy, thereby releasing the insurer from his liability to the insured.   If the assured acts in a manner that has the effect of causing loss or damage to his own property, then he loses the protection of the insurance coverage for that cargo.

2)  Ordinary Losses:  Often, cargo, depending on its nature and constitution, undergoes changes in its quantity and or quality, thereby reducing its value.  Similarly, leakage is inherent in certain types of cargo like oil.   Further, certain cargo suffers wear and tear in the course of voyage, without any deliberate action towards this end.   Such losses are excluded from the scope of this clause.

3)  Improper Packing and Loading:  Many a time, shippers do not ensure proper packing and loading of the insured goods, resulting in loss or damage, in the course of the voyage.   Such losses care not covered under this clause.

4)  Inherent Weaknesses:   Certain types of cargo suffer certain inherent weaknesses, that may render them vulnerable to loss or damage.  Insurers would not be responsible for such losses.

5)  Delays:  The insurer is not responsible for loss or damage that can be attributable to delays, even though such delays may be a result of risks that are insured.   For example, a ship may stall on account of mechanical problems, resulting in the fresh fruit cargo on board going bad.

6)  Insolvency, etc., of Carrier:  Loss or damage to the insured cargo, on board a vessel, whose owner is insolvent, bankrupt, or otherwise in financial default, cannot make the insuere liable to settle the claim of the shipper in respect of such cargo.   Financial distress of the carrier affecting the well-being of the cargo, does not make the insurer liable to compensate.

7)  Deliberate Action:  Deliberate actions to cause loss or damage to the insured cargo relieves the insurer of his liability toward the insured.   Deliberate destruction or damage of the cargo is a criminal offence, and cannot be allowed to result in a pecuniary gain to the insured.

8)  War, Civil Disturbance, etc.:  Outbreak of war, or civil disturbances resulting in loss or damage to the insured cargo will not be underwritten by the insurer.   However, some insurers do allow coverage for cargo even under such circumstances, on payment of additional premium.   The current unrest in Thailand, is a case in point.

9)  Un-Seaworthy Vessels etc:  Where the deployment of vessels that are not seaworthy, etc., results in loss or damage to the insured, the insurer would not be liable under the policy to compensate for any loss or damage to the cargo.

                                                                                   To be concluded

Marine Insurance in International Trade-Part IV

In the previous article,we had examined as to who has an insurable interest, and the type of marine insurance available in regard to international trade.   In this article, we shall take a look at the various types of insurance policies offered by insurers to support the four types of insurance.

Types of Marine Insurance Policies:

1)  Specific Voyage Po9licy:  As the name indicates, this marine insurance policy covers a particular voyage only.   The insurance cover becomes effective when the ship starts its voyage, and expires upon the delivery of the consignment at the place of destination.   It is a one off policy covering only one voyage.

This type of policy is suitable only for those who do not engage regularly in international trade, but only ocassionally.  

2)  Time Policy:  This policy is issued for a particular period of time, normally one year at a time.   The cover under this policy commences from the date and time as specified in the policy, and expires at the end of the stated period.

The assets covered under this policy would enjoy the same for the period of insurance, whatever the course of the voyage.   This policy, though issued normally for a period of one year, may be extended beyond this period, through suitable amendment.

3)  Mixed Policy:  Sometimes a mixed policy is obtained which covers the risk to the insured assets during a specific voyage, for a specific period of time.  It may also be insurance to cover two different types of risk, on land as well as by sea.

4)  Valued Policy:  In this policy, the value of the consignment is ascertained before hand and specified in the policy.   The insurance cover is thus restricted to such stated amount.

5)  Un-Valued Policy:  In this policy, the value of the consignment is not specified in the policy.   Rather the insured is favored with a specific amount of insurance within which he may forward the goods for export.   The value of the goods on a particular voyage is ascertained as and when there is a claim.

6)  Floating Policy:  Also called ‘open policy’, it is popular with merchants and exporters who regularly export goods.   It is convinient for them to obtain a floating policy that offers cover for a specific amount, without reference to the cargo, or the voyage, or the ship.  

Every time a consignment is exported, the details of the same must be conveyed to the insurer, in advance, who takes congnizance of the same, and provides for the necessary cover for the stated cargo on the specific vessel, for the concerned voyage, within the overall limit fixed for the particular customer.

7)  Wagering or Honor Policy:  Normally, only a person with insurable interest is eligible to obtain insurance.   For example, a ship owner for the ship, and the cargo owner for the cargo, and so on and so forth.   Sometimes, an insurer issues a policy to a person without insurable interest, without benefit of salvage to himself (the insurer).

8)  Sellers’ Contingency Policy:  This is policy meant to protect the interests of the seller, who may find it difficult to get payment for the goods supplied to the buyer, on account of a change in the quality etc of the goods, for different reasons.

Where the seller of the goods, affords credit to the buyer in an export transaction, but the goods are exported on  F.O.B basis, a peculiar situation arises,  where the  ownership of the goods remains with the seller, but the responsibility for the goods passes on to the buyer.  In such a case, if the buyer does not accept the goods, citing reasons of damage to the goods, then the seller stands the risk of losing money.   The Sellers’ Contingency Policy is meant to address this risk, and protect the interests of the seller.

                                                                                           To be concluded

Marine Insurance in International Trade-Part III

In earlier articles, we had studied what is marine insurance,  why it is required, who can obtain it , and the types of insurance available.   In this article, we shall briefly examine the concept of loss ascertainment in marine insurance, and the system of  ‘Averages’, by which loss or damange is compensated for the insured assets, that are destroyed or damaged.

Intenational Trade, or for that matter, even domestic trade, involves the movement of merchandise from the place of its origin, and or production, to the place of its delivery and or consumption.  

This movement, or transport of goods involves initiating several steps, or actions, till the goods, or cargo reach their final destination.   Some of these steps include loading the cargo on to trucks or railway carriages, or barges from the point of origin to be taken to the vessel, or ship that actually carries the cargo across the seas,  to its destination.  

At every step of the way, from the time the cargo leaves the origin point, till the time it reaches the final destination, and handed over to the consignee, it is subject to several known and unknown risks, that might cause loss or damage to the cargo.

The quantum or extent of loss or damage that the vessel and the cargo within, may suffer, is measured by a system of ‘averages’.   There are two types of ‘averages’, namely, Particular Average, and the General Average, that are discussed below.

Particular Average:  This average relates to two types of situations.   One, where loss or damage occurs, both to the vessel as well as the cargo.   And the other, where loss or damage is restricted to the cargo.  

In the first type of situation, the loss or damage may involve both the cargo and the ship.   Some of the situations where this might happen, are the sinking of the vessel, resulting in the total loss of the vessel and the cargo.   Another example is a collision between two vessels, causing either sinking of the ship, or considerable damage to the ship, and of course, the cargo.   A third example, is where a ship is grounded on encountering an obstruction in its path, in the sea.   Here, considerable damage may be caused to the ship, and to some extent, the cargo.

In the second type of situation, only the cargo on board the ship may be subject to loss or damage.   Typical examples of such loss and damage may relate to one or more of the following: theft/pilferage of the cargo;   degeneration in the quality and quantity of the goods on account of vibrations of the ship;   episodes of turbulence, acceleration or deceleration experienced by the ship on account of exposure to elements, and inclement weather, etc.  

General Average:  This average refers to the loss or damage suffered by one or more of the shippers  whose cargo had to be jettisoned, or thrown overboard, into the sea, in order to save the rest of the cargo.   Certain situations at sea may demand the ’sacrifice’ of certain cargo to safeguard certain other type of cargo.

Naturally, this would be unfair to the shippers that lost the cargo, as they had also obtained insurance for their cargo, like the others.  

Hence, in order to compensate such shippers, who find themselves at the receiving end,  as above, all the other parties involved in the shipment are obliged to contribute towards the losses suffered by the shippers whose cargo had to be jettisoned.

The quantum of contribution to be made by the other shippers depends on the equation between the value of the cargo jettisoned and the value of the cargo thus saved.   Again the value of the cargo that was jettisoned is fixed according to its  insured value.   This process can be a bit complicated, and requires the services of a specialist called the “average adjuster”.

                                                                                      To be concluded

Finance: Leasing-Part II

In the previous article, we had seen what is leasing about, with the help of a simple example, and the benefits of leasing.   In this article, we shall examine the types of lease transactions, and the difference between them.

Types of Leasing:   There are basically two types of leasing-the Finance Lease or Capital Lease, and the Operating Lease.

Finance Lease:  A Finance Lease, also called a Capital Lease, is a commercial contract, wherein the lessor, at the instance of the lessee, places an order for an asset, as per specifications provided by the lessee, and such asset is leased out to the lessee, on certain terms and conditions.

The standard terms and conditions in a lease contract like this, is that the ownership of the asset remains with the lessor, and the lessee will have the right to the beneficial use of the asset.   Further,  he would be obliged to take proper care of the asset, and ensure its upkeep.   And as a consideration for the use of the asset, the lessee would have to pay a certain sum of money every month in the form of lease rentals.

At the end of the lease period, the lessee would have the option to buy out the asset from the lessor, at a very attractive price.   And since it is he that has used the asset all the time, the lessee is sure of the quality and the remaining life of the asset, which enables him to take a correct decision.   As for the lessor, he would have recovered the major part of  his investment on the asset from the lease rentals, and would also have the benefit of the residual value of the asset, that he could sell to the lessee, or others.

Operating Lease:  A Operating Lease is similar to a Capital or Finance Lease, to the extent that the ownership of the asset lies with the Lessor.   And the Lessee enjoys the constructive possession of the asset, enabling him to make money out of the same, without actually owning the asset.  

However, the operating lease cycle is generally for a shorter period vis a vis the life of the asset.   For instance, if the productive life of the asset is, say, 20 years, then the lease period may be only for 5 years.   Operating lease, generally, does not provide for the sale of the asset at the end of the lease period.

Difference between Finance Lease and Operating Lease: 

The Finance lease is generally long term, covering almost the entire productive life of the asset, whereas the Operating Lease is generally short term in comparison.

The Finance Lease provides for the purchase of the asset by the lessee at the end of the lease period, which is not the case with the Operating lease.

In the Finance lease, the lessor recovers the major part of his investment in the asset, if not the entire cost, and the residual value of the asset is not much.   Whereas, in the Operating lease, since the lease period is a short one, the lessor does not recover the major part of his investment in the asset.   However, the residual value of the asset is quite high.

Generally, the Finance lease may work out to be cheaper option to the lessee compared to the Operating lease, as in the latter case,  the monthly rentals, would in all probability, include a risk premium.

Summary:  Leasing, as a financing option, has its pluses and minuses.   It really depends upon the requirements of the lessee, and how much freedom he has to exercise his options for other, cheaper sources of finance.

                                                                                                             Concluded

Finance: Leasing-Part I

What is Leasing?   Leasing is a type of financing,  in kind (instead of cash).   A lease transaction involves the owner or lessor of the asset, say machinery, or a car, etc., transferring the right to use the same to another person called the lessee.   This transaction is formally called a lease.

In this transaction, the ownership of the asset continues to vest with the lessor.   Only the beneficial use of the asset is afforded to the lessee.   The consideration due to the lessor from the lessee is called as the lease rentals.   These rentals are normally fixed amounts payable monthly.

How it works:  John Deere, a resident of Oklahoma City had always dreamed of owning his own taxi and ferrying passengers across cities.   He loved driving and wished to combine his love of driving with a service that would take care of his livelihood.

But John did not possess the financial wherewithal to buy a car on his own and get started with his passion and his profession.   He therefore approached a local Bank with a proposal for purchase of a car for the purpose of plying it as a taxi.   The Bank, after evaluating his proposal did not find him upto the mark in regard to his creditworthiness for the USD:36,000.00 loan he had asked for.

Disappointed,  John thought of approaching a fleet owner to join them as a driver.   But his heart was not into it, and he gave up the idea.   Eventually, John contacted a Leasing company, that offered to lease out a car of his choice to John for a reasonable monthly lease rental.   John considered the proposal inside out, and decided to accept it.

Under the terms of the contract, John would get a brand new car of his choice.   He could use it for his professional activity and pay the lessor, or the owner, a fixed monthly rental.   He would also have to take proper care of the car, and keep it in good condition.   Further, at the end of the lease period, he would have the option to buy the car from the lessor, at a very attractive price.

In this way, John came to possess, albeit constructively, a brand new car to pursue his passion to drive, as well as make a livelihood out of it.   This is a simple example of how a lease transaction works.

Benefits of Leasing:  There are several benefits of leasing, both to the lessor and the lessee.

Benefits to the Lessor:  The lessor that owns the asset, may not always be in a position to utilize it for his own benefit, and thereby incur costs for maintaining the same.   Leasing offers a way of making some money out of the asset.

The lessor does not have to bother about the upkeep and maintenance of the asset, as it is taken care of, by the lessee.

The asset brings a regular income with the minimum of hassels.

Benefits for the Lessee:  The lessee may not be eligible for a Bank loan for various reasons, and leasing is an alternative finance option for him, that is more convinient, and may be cheaper.

The lessee has the option to buy the asset at the end of the lease period at a very attractive price.   Moreover, it is an asset that he himself had been using. 

If, at the end of the lease period, the asset is giving diminishing returns, the lessee can go in for a fresh lease, and get a new asset for the new lease.

Leasing has become a well established financing option for businesses, providing them with an alternative to the regular banking finance.

                                                                               To be continued

Financing: Factoring-Part I

Introduction:  One of the major stumbling blocks faced by a buiness is the financing of it.   A business requires money for various activities and purposes.   For example, a manufacturing concern requires money for procuring the raw materials, and processing the same into the finished goods.   That apart, money is required to pay the wages of the workforce,  servicing of the plant and machinery, upkeep of the premises, marketing of the products, etc.   Every stage of operations of the business requires infusion of money to ensure smooth functioning and to achieve the business goals.

Over a period of time, different methods of financing business have evloved.   The type of financing required by a business depends upon the nature of its activities, and related issues.   For example the type of financing required by a manufacturer of Televisions is different from that required by a Software Development Company.

Factoring:  Factoring is a type of financing available to any business that engages in sale of goods and services through the medium of the Invoice.   Practically, every business engaged in selling ‘raises’ an invoice on its buyer or client.   An invoice is a commercial document that provides details of the product or service being supplied, the unit price of each item of sale, the delivery terms, taxes where applicable, any discounts given, other charges if any, etc.   It also stipulates the time within which the buyer must pay for the goods and services.   This commercial document(invoice) represents the account receivables of the firm.   That is, the money that the firm will receive upon supply of the goods and services mentioned therein, from the buyer.

Now the seller of the goods and services as above, has two options to realize the proceeds of his sale.   One, he can wait for the buyer to make the payment in the normal course against the delivery of the goods/services as per the contract terms.   Second, the seller can also approach a ‘Factor’ to encash the invoice immediately.   The Factor is the financier who advances money to the seller against his invoices, that represent the seller’s receivables, at a discounted rate, and collects the full value of the invoice from the buyer. 

To clarify further, factoring is the financing of accounts receivables of the seller at a discount, and realizing the full proceeds form the buyer, now the debtor.   The factor first pays the seller, the realizable value of the goods and services evidenced in the invoice at a discount, and then recovers the full value of the invoice from the debtor, the buyer.

In a transaction like this, the factor, who is parting with his money, has to make sure of getting it back, not from the seller, but from the buyer.   Therefore, the financial standing and the creditworthiness of the debtor is of primary imoratance to the factor, more than that of the seller.   If the debtor defaults on payments, then the factor has  to suffer a loss.   As such, the factor would satisfy himself with the solvency of the debtor before engaging with him in this transaction.

There is another kind of factoring arrangement, called with recourse factoring.   It is similar to the regular or without recourse factoring, except that, in the event of default by the debtor, the factor has recourse to the seller, who has to make good the loss suffered by the factor.   That is the factor can recover the money advanced to the seller from the seller himself, alongwith his charges, etc., in case of the buyer’s default.

As can be seen, the with recourse factoring transaction is safer and more favorable to the factor.   However, for the same reason, that it is safer, it is also less remunerative to the factor.   The revenues and profits accruing to a factor are in proportion to the risk he undertakes under the transaction.

In future articles, we shall study how a factoring transaction actually looks like, the relative advantages and disadvantages of this type of financing for a business etc.

                                                                                          To Be Concluded

My Word!

The British Prime Minister is visiting the United States of America to meet with the new occupant of the White House, Mr.Barack Obama.   And both the countries have reaffirmed their ’special relationship’ after the first meeting of the two leaders.  

However, an undercurrent of tension could be discerned between the two traditional allies (especially  in rogue ventures)!   Also the kind of brotherhood evident between their predecessors, Mr. Tony Blair and Mr. George Bush was clearly missing here.

The British are  concerned by the seemingly protectionist tone and tenor of recent American Trade Policies, in the wake of the economic meltdown, for example the Be American, Buy American type of exhortations and stipulations, aimed at American Companies, especially those receiving Government fiscal and monetary support.

It would be interesting to see what sort of changes may come about in  this ’special relationship’ in the coming weeks.