A Report on

ANALYSIS OF

FACTORING SERVICES & CREDIT CONTROLFOR BHARTI TELETECH LTD

PREFACE

The present study was undertaken as a part of the organizational training (1) Component of the PGDMBA course of masters in business studies in financial management. The object of this training was to develop information search skills into students. This enables them to gather information on a given subject in a systematic and consciously planned manner.

The study was done as the project for BEETEL Ltd, New Delhi. Beetel is engaged in production of range of basic and cordless phones and is also National distributor of Motorola handsets in India. The study was carried out during the months of June-July07. Its objective was to study the concept of Factoring in detail in context of distribution of Motorola handsets by BEETEL in India and suggests about the study.

CONTENTSCertificate Acknowledgement Preface 1. Executive summary 2. Introduction 3. Objective of the study 4. Company profile 5. Concept of Factoring

- BHARTI - BEETEL 6. Factoring benefits 7. Working of Factoring 8. Factoring strategies 9. Methodology 10. Beetel and TD 11. Beetel and UTI Bank 12. Beetel and NEW INDIA INSURANCE Group 13. Working and Credit Control in Beetel 14. Recommendations and suggestions 15. Conclusion

EXECUTIVE

SUMMARY

EXECUTIVE SUMMARYManagement of working capital is a matter of balance. A company must have sufficient cash on hand to meet its immediate needs while ensuring that idle cash is invested to the organizations best possible advantage. The most important component of the working capital is debtors because the entire operating cycle depends upon the turnover period of the debtors and here the Factoring concept has witnesses a heralding revolution during the recent years. Factoring is proving a powerful tool in the hands of management for having 100% control over the debtors of the company.

In the analysis done for BEETEL, a Bharti Group Company, it was found that the debtors has increased due to drastic increase in sales because of the distribution business of MOTOROLA products and accessories. Company has managed efficiently to decrease its debtors turnover period through the factoring services of UTI bank. BEETEL has entered into an agreement with the UTI bank for the receivables Factorings for conversion of MOTOROLA sale invoices into instant cash. In this way company has managed to convert their receivables into instant cash to meet its day to day requirements. Thus, good management of receivables is a part good financial management of BEETEL. Its effective use is contributing to the operational efficiency of the company, resulting to increased turnover and maximum returns.

Objectives Of

The Study

OBJECTIVES OF THE STUDY

Before entering the Beetel, Factoring was an unknown concept to me, so it being the vast topic is was really difficult to plan out the objectives. But howsoever the objectives which were planned after entering the Beetel and understanding the concept of Factoring are:

Understanding the concept of Factoring Understanding the strategies related to Factoring

Client dealing/TD dealing How to make factors Considerations while taking Insurance cover Managing credit with factoring

Company Profile BHARTI

BHARTI ENTERPRISE

Bharti Enterprises has successfully focused its strategy on telecom while straddling diverse fields of business. From the creation of 'Airtel', one of India's finest brands, to becoming the largest manufacturer and exporter of world class telecom terminals under its 'Beetel' brand, Bharti has created a significant position for itself in the global telecommunications sector. Bharti Airtel Limited is today acknowledged as one of India's finest companies, and its flagship brand 'Airtel', has over 40 million customers across the length and breadth of India. While a joint venture with Teletech Inc., USA marked Bhartis successful foray into the Customer Management Services business, Bharti Enterprises dynamic diversification has continued with the company venturing into telecom software development. Recently, Bharti has successfully launched an international venture with EL Rothschild Group owned ELRO Holdings India Ltd., to export fresh Agri products exclusively to markets in Europe and USA. Bharti also has a joint venture - Bharti AXA Life Insurance Company Ltd. with AXA, world leader in financial protection and wealth management. Bharti has recently forayed into retail business under a company called Bharti Retail Pvt. Ltd. It also has a MoU with Wal-Mart for the cash & carries business.

Highlights

Bharti Enterprises announces new Apex level Strategic Organization Structure.

Bharti Announces Strategic Roadmap for its Retail Venture

Bharti Group has an arrangement to buy 5.6% direct interest of Vodafone in Bharti Airtel Limited for US$1.6 billion

Sunil B. Mittal chosen for this years Padma Bhushan Awards.

Bharti Airtel receives Letter of Offer to provide 2G and 3G mobile services in Sri Lanka

Group Structure

STRUCTURE OF THE COMPANY

Company profile BEETEL

BHARTI TELETECH

BHARTI TELETECH

PROFILE

In 1985, Bharti Teletech entered into a technical collaboration with Siemens AG, the German technological giant and set up a plant in Ludhiana to manufacture telephones. Come 2005, and Beetel has journeyed across twenty years of creating history. In 1991, Beetel manufactured phones for 'Sprint', the American telecom mammoth. Shortly after, in 1993-94, came ISO 9001-2000 accreditations for the manufacturing units - by this time two in numbers, at Gurgaon and Ludhiana. And in a short span of time, Beetel was already the market leader. Cornering half of the Indian market, Beetel became 'India's Favorite Phone' . Today Bharti Teletech has two ISO 9000 certified plants with an annual capacity of 5 million units p.a. Bharti became the first company to manufacture cordless telephone and telephone answering machines in India. It is also the first to launch SMS phones on fixed line in the country thereby heralding a revolution in fixed line SMS telephony. In line with customer needs, Bharti was also the first to launch backlit LED and GSM Interference free phones. Our product range includes the BASIC Phones, CALLER ID Phones, CORDLESS Phones, 1.8 GHz DECT, 2.4 GHz phones, VOIP Phones, broadband (ADSL) equipments like Modems, routers and set top boxes. BTTL is the first Indian company to manufacture 20 million phones. Today, one out of every three phones in India is a Beetel. With rapid growth over the years, Bharti Teletech

today is the largest manufacturer of phones in the Globe outside China. Bharti Teletech commands a lion's share of over 90%. In the extremely competitive BSNL/ MTNL segment. Bharti became the first company to export phones to Sprint Inc. USA - recognition of our world class quality. Today, BTTL is present in 30 countries across 5 continents Exports are a huge thrust area for Bharti. In 1991, Bharti became the first company to export phones to Sprint Inc. USA recognition of our world class quality. The export operations have been highly successful over the years. In 2003-04, exports crossed the half million mark - a quantum jump since we started. Today, we are present in 30 countries across 5 continents despite intense competition from the strongest brands in the world. Brand building initiatives have also taken fruit in the global arena. The Beetel brand is present in Vietnam, Iran, Chile, Oman, Bangladesh, Mauritius and Sri Lanka. This list continues to grow with each passing month and it is a matter of time before Beetel becomes a truly global brand. Bharti Teletech Team is upbeat to create History by crossing a Sales Turnover beyond 2000 crores in FY 2006-07 against the last year's 543 crores "The story continues. The canvas has broadened immeasurably, so have the challenges. And it is not long before India's Favorite Phone makes its presence felt across the globe."

ACHIEVEMENTS

Trend has won GOLDEN PEACOCK AWARD as the only phone with SIM card reader. The model Millennium Clip Max (A high end Caller ID and Two way speaker phone) recently launched in the market WON a GOLDEN PEACOCK AWARD for INNOVATIVE DESIGN.

Beetel has a range of over 35 models across basic, feature and cordless segments and continues to add a new model every month. With a current market share of over 40%, Beetel is the first choice of the Indian consumer. In the growing private service provider segment, Bharti Teletech commands a lions share of over 90%. In the extremely competitive BSNL/ MTNL segment, we have crossed a market share of 50%. BTTL has successfully met the challenge of providing quality products at competitive prices. Following are the new products recently introduced in the open market :-

DB 9200 - Caller Id with Speaker

CB 60000 -2.4 GHz Cordless Phones

CB 61000 -2.4 GHz Cordless Phones with base dialing

CB 59000 -2.4 GHz Cordless Phones with color Screen

CB 49000 - Low Priced 2.4 GHz Cordless Phones

DF 8800 -Caller Id Phone with large Screen Display

Following are the new products recently introduced for the DOT market as per new TEC specifications (GTEL-02/04); all these models are GSM interference free.

IRIS 2K3 GARNET PERIDOT (A CLI PHONE)

Beside this company has maintained its leadership in all chosen markets like PSP, DOT, OPEN MARKET & EXPORT (exporting to 30 countries across five continents world wide

DOMESTIC After years of careful and focused brand-building, Beetel is recognized as a trusted brand in India and is poised to take on global players in the most competitive international markets. Beetel was the first Indian brand to launch caller ID phones in India and the first to bring down the price of cordless phones to an affordable range at below Rs. 2000. Beetel has also pioneered SMS phones, the first in India. With this landmark development, India now has the pride of joining the select set of countries that offer SMS on and from fixed-line telephony service platform worldwide. For the consumer in India, Beetel is truly ringing in the future. Indian PTT has accepted Beetel instruments whole heartedly and the brand has a 60% share in this market. The private service providers have shown great faith in Beetel's products and appreciate the company's ability to customize the phones to their specifications. Beetel has garnered over 95% of this market. Beetel has remained the No. 1 brand in the Indian retail market, with a market share of over 50%.

The company's marketing network encompasses over 580 distributors and over 30,000 dealers, taking Beetel phones to every corner of one of the biggest markets in the world.

INTERNATIONAL

After years of careful and focused brand-building, Beetel is recognized as a trusted brand in India and is poised to take on global players in the most competitive international markets. Overseas, the company has a richly diversified customer base in over 30 countries across five continents. The markets include the USA, South America, Eastern Europe, the Middle East, South East Asia and Africa. Telephone instruments are supplied to Siemens, Akai, Connair and the Sprint Group in the USA among many others. The Electronics and Computer Hardware Export Promotion Council conferred upon Bharti Teletech, the award for the Top Telephone Instrument Exporter. The company exemplifies a marketing success story that writes new chapters of achievement with each passing year.

COMPANYS VISIONS AND VALUES

VISION

To be a leader in Telecom and allied products in chosen global market.

VALUESCustomer

We will be responsive to the needs of our customer

People

We will trust and respect our employees

Learning

We will continuously improve our products and services-innovatively and expeditiously

Community & Partners

We will be transparent and sensitive in our dealing with all stakeholders

QUALITY POLICY

At Bharti Teletech quality has always been among the top priority .

QUALITY OBJECTIVES

To meet customers' requirements in terms of functionality, safety, aesthetics, life expectancy and taking effective actions on their feedback's. To ensure planned results and continual improvements in all operations (processes and products).

To increase productivity by reducing rejections & non-value adding activities, and bringing automation. To effect continuous improvements in Customer Satisfaction Index. To ensure training of employees as per defined targets studying needs and

requirements.

To ensure that all statuary and regulatory requirements are complied with.

QUALITY CULTURE

Providing training on Quality education system right across the entire organization to carry out continuous Improvement activity in collaborative way. Deployment of Quality policy & Quality Objectives through out the Organization in a structured way & is headed by CEO as Chairman of Quality Improvement Team. Cross-functional Improvement teams to promote Synergy through sharing. All the employees always carry out an Improvement project, which leads to improvement in their individual efficiency. Rewarding/ recognizing the good performers (individual as well as teams) in monthly / quarterly and yearly functions. Encouraging innovation by way of giving token reward for each suggestion and running trophy to department giving maximum suggestion per person per month.

Encouraging people to work as a team in Small Group Activities (TCAs) and Quality Improvement Projects (QIPs)

QUALITY ACHIEVEMENTS

Bharti Teletech Limited is a Quality Conscious organization & continuously Strives for Quality Improvement through Process Management. Some of the achievements which have come out of company's unstinted faith in investing for quality are :

AwardsGolden Peacock Innovative Product/Services Award in the Telecommunication Sector for the year 2002, the Golden Peacock for Innovative Management for the year 2004 and Most in 2005. Innovative Product

Recipient of the ESC Award for Excellence in Exports in Telecommunication Equipment in 2001-02 and 2002-03. Winner of the Voice & Data Award for "Top Telephone Manufacturer" in 2002-03 and 2003-04. Won the Consumer World Award for 2004. Awarded the "Top Fixed Line Phones Company-2006" by Voice and Data

BEETELS GROWTH

Beetel has established itself as a leader in "Modems". Beetel has also entered the "SetTop Box" market and is on foray in this segment. Bharti Teletech has joined hands with world leaders in their categories for manufacturing and Distribution of their products through it's Channel.

In addition to being manufactures and Distributors of "GE Phones" in India and select SAARC countries, today BTTL are National Distributors for"Motorola" GSM mobile Handsets and Accessories "Polycom" Audio and Video Conferencing Systems "Microsoft X Box" gaming devices.

DISTRIBUTION BUSINESS OF BEETEL

GE

POLYCOM

XBOX

MOTOROLA

CONCEPT OF FACTORING SERVICES

INTRODUCTION TO THE CONCEPT OF FACTORINGFactoring is a financial service designed to help firms to arrange their receivable better. Under a typical factoring arrangement a factor collects the accounts on due dates, effects payments to the firm on these dates and also assumes the credit risks associated with the collection of the accounts. Sometimes the factor provides an advance against the values of receivable taken over by it. In such cases factoring serves as a source of short-term finance for the firm. In order to provide a gamut of financial services under one roof, Corp. has also started factoring services. Under the scheme Corporation shall be at the time being only providing advances or prepayments against receivable and other services provided by the factor such as debt collection & administration of sales ledger etc. shall be taken later on. Under the scheme receivables only arising out of domestic trade shall be considered for factoring. Supplier/Borrower shall draw bills of exchange for goods supplied and the purchaser shall accept that. After acceptance of bills of exchange, Corporation shall make prepayment of 80% of invoice value after deducting its discount charges @ 17% to 18% p.a. for period of bill of exchange to supplier. Balance payment of 20% of the invoice value shall be made after collecting the payment from purchaser. If purchaser fails to pay the due amount on due dates, the supplier shall make the payment. Borrower/ Supplier shall submit Bill of Exchange along with invoice LR/RR receipts. Suppliers to be eligible for factoring must have minimum track record of 03 years with consistent profitability and minimum net worth of Rs. 25.00 lacs.

Usually before providing advance payments to supplier an agreement is entered with supplier for arising debts of purchaser to Corporation and Corporation make advances only against invoices drawn to this particular purchaser. Sub-limit of each purchaser is fixed and sum of these sub limits is over all limit of supplier. Usually purchaser should have been dealing with supplier for minimum period of two years. Maximum limit of each purchaser should not exceed Rs. 25.00 Lacs at a time. Usually limit for factoring is calculated on the basis of the projected receivables on credit sales of the company and deducting existing bills/books debts limits enjoyed by the company from bank. Maximum limit shall not exceed two months average turnover of the supplier as per last audited balance sheet or projected turnover of current year subject to maximum of Rs. 100.00 Lacs.

Creative Alternative Financing MechanismThe word "factor" comes from the Latin "factare" meaning "to make or to do". This financing mechanism dates back to the time of Hammurabi. It has been part of the basic fabric of all trade. The concept of "making it happens now" continues. Essentially it is the sale or assignment of a sale, trade, or accounts receivable account for immediate cash. By definition, it provides any business from start-up to mature companies (at any size), access to immediate cash and improved cash flow for expansion or growth but without diluting equity or incurring debt. The reasons for using this financial tool are just as numerous as they are varied:

take advantage of trade discounts or other early payment options with suppliers or vendors and

ability to re-invest immediately to acquire new sales opportunities;

Since the factoring firm effectively assumes the credit evaluation risk of accounts receivable that may translate into decreased internal costs for accounts receivable administration, more efficient and effective customer accounts collection (quicker pay), and better information for management on the credit worthiness of the firm's clients;

increased working capital turnover as well as a reliable source of immediate financing; and

Other financing options may not be available or timely for firm requirement(s). .

Factoring is not a collection system for bad debts or even slow pay accounts. Use of factoring may however tend to speed the payment from an otherwise slow-pay client once the disciplined payment techniques of a qualified factor are introduced. As with any "financial tool", there may be wide variations in applicable terms, conditions, and cost rates for its utilization. For example, advance rates (percentage of invoice paid in advance of collection) may vary due to account risk, industry, and factoring firm. The discount rate (fee charged by the factor for the financing) may also vary by actual risk in the account, industry, and/or factor firm. Transactions may either be "recourse or non-recourse" (return liability or guarantee of collection from the firm) which may take the form of merely replacing a receivable if it reaches a previously agreed upon age. All of these variables then come together in a "risk evaluation" cost rate or fee for the factoring service. As with any type of financing, the greater the perceived risk, the greater the cost for the service. The range for the first 30 days might be expected to be 2%-7% of the gross value of the account financed, with 5% being typical. There may also be a wide variety of other terms and conditions in the transaction such as:

Minimum invoice amounts (i.e., $200 - $500), minimum monthly volumes (i.e., $10,000 - $500,000), and/or time period commitments (i.e., 6-12 months).

Notification and non-notification to the receivable account that a factoring transaction has occurred.

Just like all financing options, the business firm must evaluate its own individual needs and requirements including a focused evaluation of all actual or potential advantages versus the costs in the transaction. In most circumstances and at every stage of development, factoring, if properly utilized, can be a very valuable financial tool to achieve expanded sales and company growth. Not all factoring companies are alike, often with wide variations in terms, conditions, and rates depending on your firm's needs and accounts receivable (as well as size and geographic coverages -local, regional, and national). Factoring is often used synonymously with accounts receivable financing or debtor financing or invoice financing. Factoring is a form of commercial finance whereby a business sells its accounts receivable (in the form of invoices) at a discount. Effectively, the business is no longer dependent on the conversion of accounts receivable to cash from the actual payment from their customers, which takes place on typical 30 to 90 day terms. Businesses benefit from the acceleration of cash flow by obtaining cash from the factor equal to the face value of the sold accounts receivable, less a factor's fee. Factoring is considered off balance sheet financing in that it is not a form of debt or a form of equity. This fact makes factoring more attainable than traditional bank and equity financing. Debtor factoring has been established as a method of raising working capital for some 200 years. Over that time, numerous product variations have emerged until today there are a diverse variety of services and optional extras available.

In essence, there are four basic services of which the factoring company will offer their client some combination:

-Early -

Payments Sales Non

(including

overpayments Credit Ledger

in

some

cases) Control Administration

Recourse

Credit

Protection

The first is an Early Payment against the credit invoices that they raise. When a business first takes up a factoring facility there will normally be an outstanding sales ledger of unpaid invoices. The factoring company will make available a prepayment against these invoices, often up to 85% of their value, and this can create a substantial cash injection for the business. As the business continues to raise invoices, they are passed to the factoring company who will provide further funds against those invoices. The factors early payments are then repaid as the invoices are paid by the customers. In this way the facility is of a rolling nature that will grow in line with the sales that the business makes. This can be considerably more attractive than traditional overdraft lending which is often much less flexible. These funds can be put to good use within the business e.g. settling supplier invoices early in order to receive further discounts.

Credit Control is a collections service whereby the factoring company will employ letter and telephone based chasing techniques to ensure that payments are received from customers on a timely basis. Indeed, a factoring company can often improve the overall debt turn (the average number of days in which sales invoices are paid) of its client which creates a further cash flow benefit. The other advantage of outsourcing debtor credit control is that a factor can often offer this at a fraction of the cost of employing one or more members of staff. This can translate into another tangible saving for a client. Even where the owners of small businesses handle the credit control themselves, it has to be carried out during office hours and this is time that the factor can free up for the owner, enabling them to spend that prime time seeking new sales.

Sales Ledger Administration is a service whereby the factor will create and maintain a debtor sales ledger for the client's business. As invoices and cash are received so the factor

will post them to the ledger and the factor will provide this information to the client either via electronic links or paper print outs.

Non Recourse Bad Debt Protection is an optional additional service whereby the factor will insure the client against non payment by customers that the factor has pre-approved. The client will normally advise the factor of the details of new customers that they wish to trade with and the factor will investigate the credit standing of that business in order to grant a credit limit. The client can choose to exceed the level of the limit that is granted but if they trade within the limit they will enjoy the peace of mind that comes from knowing that they will get paid by the factor should the customer go bust or fail to pay by reason of protracted default.

The number of businesses that use debtor factoring has continued to grow significantly year on year and on average a clients stay with their providers for a number of years. This supports the case for factoring as a cost effective way of saving money and raising working capital for expansion.

Characteristics of factoring Usually the period for factoring is 30 to 90 days. Some factoring companies allow even more than 150 days. Factoring is considered to be a costly source of finance compared to other Factoring receivables is an ideal financial solution for new and emerging firms without strong financials. This is because credit worthiness is evaluated based on the financial strength of the customer (debtor). Hence these companies can leverage on the financial strength of their customers. Credit rating is not mandatory. But the factoring companies usually carry out credit risk analysis before entering into the agreement. sources of short term borrowings.

Cost of factoring=finance cost + operating cost. Factoring cost vary according to the transaction size, financial strength of the customer etc. The cost of factoring depending upon the financial strength of the client's customer. Indian firms offer factoring for invoices as low as Rs1000. For delayed payments beyond the approved credit period, penal charge of around 12% per month over and above the normal cost is charged (it varies like 1% for the first month and 2% afterwards)

TYPES OF FACTORING

[A] Notified, or full service factoring With notified factoring, the debtors are aware of the finance facility as the factoring company normally does the credit control, that is, collects the outstanding debts. [B] Confidential, or invoice finance With invoice finance (sometimes called confidential or non-notification factoring), the factoring facility is undisclosed, with the seller usually retaining the credit control function. [C] Recourse factoring Recourse factoring is now the most common type of factoring transaction. This factoring transaction allows the factor to go back to the seller if payment is not received (normally after a 90 day period). The credit risk does not transfer to the factor during the recourse factoring process.

Normally, in the event of non-payment by the customer, the seller must buy back the invoice with another invoice (credit worthy). Recourse factoring is typically the lowest cost for the seller because the risk for the factor on the funding transaction is lower. [D] Non recourse factoring Non recourse factoring is the traditional method of factoring and puts the risk of nonpayment, in the event the debtor becomes insolvent, fully on the factor. If the debtor cannot pay the invoice due to insolvency, it is the factor's problem to deal with and the factor cannot seek payment from the seller. The factor will only purchase solid credit worthy invoices and often turns away average credit quality customers. The cost is typically higher with this factoring process as the factor assumes a greater risk.

BENEFITS OF FACTORING

No collateral security required.

As a result of factoring services, the enterprise can concentrate on manufacturing and selling. The risk of bad debts is eliminated. The factoring institution also provides advice on business trends Increase Cash Flow Without Increasing or Adding Debt Fast and Easy Process Cash Received for Your Invoices in 24 Hours or Less Eliminate Long Billing Cycles Add Capital to Your Business That is Not a Loan Pay Off Past Due Operating Expenses Increase Marketing Efforts Provide Consistent Weekly Cash Flow to Allow for Better Planning and Growth Reduce Stress Involved With Not Having Cash to Meet Business Obligations Reduce Bad Debts by Using the Factors Credit Department Make Professional Quick Credit Decisions for New Customers Improve Decision-making on New Business Reduce Administration Costs Associated With Collection Activity Receive Professional Accounts Receivable Management Offer Better Terms to Customers Allowing You to Gain More Business Funding is Based on the Financial Strength of Your Customers Gain Needed Capital Without Giving Up Equity Concentrate on Important Parts of Your Business Instead of Collecting Invoices Use Your Customer's Good Credit as Leverage for Better Cash Flow

Factoring includes not only financingFactoring, contains aside from financing, an additional service as well. This means that by concluding an Agreement on the Future Assignment of Receivables in addition to financing it incliudes administration and monitoring, and to ensuring its collection and the transfer of

the additional payment to client account. In case of delay by the debtor factor send reminder notices, contact the debtor by phone and in writing, monitor the status of the receivable and take steps aimed at collection of the outstanding amount. This way, factor will help client to save time and costs connected to handling and administrating the receivables, and to be able to concentrate fully on your core business or sales activity. Factor regularly provide clients with checklists of important data, so that client have a complete overview of the purchased receivables, repayments of debtors, and other information important for client. Administration is exactly the feature of factoring that differentiates factoring from other forms of receivable financing (forfaiting, the discount purchase of receivables or specificpurpose financing)

COSTS INVOVLED IN FACTORINGThe cost of a factoring transaction is determined by three criteria. First, the credit worthiness of your customers. Second, the length of time that your invoices take to get paid. Lastly, the monthly factored volume.

Your cost, actually called a discount, can be as low as 1.5% or as high as 12% per transaction depending on how you fit the previous criteria

Factoring

fee:

A factoring fee is a fee for the expenses related to the administration of the processing of assigned receivables. The fee is stipulated by a percentage rate, as a

one-off fee from the amount of the assigned receivables, depending, in particular, on the demands for processing and the scope of the services. Interest interest rates are at the level of rates on short-term bank loans. Fee for the execution and processing of contractual documentation. rate: Interest is applied to the advance payments paid for the assigned receivables; the

PARTIES INVOVLED IN FACTORING

Seller of the product or service who originates the invoice. Debtor is the customer of the seller (i.e. the recipient of the invoice for services rendered who promises to pay the balance within the agreed payment terms). Factor (the factoring company).

HOW DOES INVOICE FACTORING WORKS?Invoice 1. you factoring generate invoices is for your very products simple: or services.

2. You submit the invoices to your clients and to the factoring company. 3. The factoring company advances you up to 85% of the gross value of your invoices (the remaining and the charges is their services, kept fee. as a is reserve best to described invoice offset with disputes). an them. example: 4. Once the invoice is paid by your client, the factoring company releases the 15% reserve Factoring you 1. lets say that you sell services to Company A and Company B. As soon as you provide 2. At the same time, you send copies of the invoices to the factoring company, who buys

them funds

and

provides are

you

with

an to

advance your

payment

for company.

them.

3. The factoring company waits to get paid by your customers. Once paid, any remaining remitted The invoice factoring process can be repeated every time you invoice, providing you with a flexible line of financing that grows with your business.

The agreement between the Client and the factor specifies the factoring procedure. Usually the client sends the customers order to the factor for evaluating the customers creditworthiness and approval. Once the factor is satisfied about the customers creditworthiness and agrees to buy receivables, the firm dispatches goods to the customer. The customer will be informed that his account has been sold to the factor, and he is instructed to make payment directly to the factor. To perform his functions of credit evaluation and collection for a large number of clients, a factor may maintain a credit department with specialized staff. Once the factor has purchased a firms receivables and agrees to own them.

The following is an example of how factoring works. Actual rates will vary based upon the nature of the advance size and the customers. 1. Factor will complete its due diligence on the client and the customers 2. Factor and the client will enter into a Factoring and Security Agreement, as well as some additional documentation. 3. Factor will notify the customers of the change of address for remittance of payments. 4. The client will submit an advance request for $10,000 to MP Star along with the invoices, the supporting documentation and assignment. 5. The factor will verify the advance to ensure that the invoices are complete and that the accounts receivable are due and payable. 6. Factor will multiply the advance request of $10,000 times the advance rate of 80% or $8,000 and subtract the initial fee of 3.5% or $350 for a total funding to the client of $7,650. 7. The invoices are then mailed to the customers. 8. When the customer sends payment to the lockbox in 30 days. 9. The factor will take from the payment the amount advanced and the initial fee. The factor would then remit to the client the balance left over when the reserve settlement is released. In this example using an advance rate of 80% and an initial fee of 3.5% for an initial fee period of thirty days the factor will advance 80% of the $10,000 advance request or $8,000 less the initial fee of 3.5% or $350 for a total advance of $7,650 to the client. In this case that would be $10,000 -$7,650 -$350 = $2,000

To extent that some invoices are not paid in thirty days, then additional late fees are charged on only the invoices unpaid for each late fee period that an invoice is outstanding.

FACTORING STRATEGIESWhen more flexible terms factoring begins, the client can increase prices to its customers by 1% to 5% to help cover the cost of factoring. In many industries, customers expect to pay a few percentage points higher to get flexible sales terms. A client can seek a cash discount from a supplier in return for prompt payment, much time from 2% up to 10% (depending on the industry standard). When a client makes cash payment on the day of purchase from suppliers, the client can profit from a large cash discount. With benefits availing to both the supplier and the customer, the cost of factoring can be covered by using smart factoring strategies.

[A] When to use Factoring?If any of the following two statements are true, then accounts receivable factoring should benefit the company.

1. Company cannot afford to wait 30 to 60 days to get paid by customers. If the companys biggest problem is that company need money sooner than the usual 30 to 60 days it takes for the clients to pay, then factoring is the ideal product for the company. A factoring company can eliminate the wait and make companys cash flow predictable. 2. Company needs money to pay suppliers or employees. Companies that need money to pay for ongoing expenses, such as employees or suppliers, can really benefit from invoice financing. Invoice financing will streamline cash flow and help to meet ongoing

obligations. However, companies that need the funds to purchase equipment or to buy real estate will usually not benefit much from factoring. There are other products in the market that will be better. Invoice financing is a great tool that can help make payments predictable. This allows the company to plan for growth and enables to capitalize on new and exciting growth opportunities. Factoring is mostly used by large, established corporations that solve in a long-term perspective the issue of the daily administration of their receivables and flexibility of financing through factoring. Factoring is also used by companies with a high growth potential which are going through a certain restructuring phase or companies which face substantial seasonal fluctuations of production. Furthermore, we are addressed by smalland medium-sized enterprises, as well as suppliers of multi-national retail chains who determine the payment and price conditions for their suppliers.

[B] Is factoring fit for the business?

Products are quick-turnover products Products are delivered regularly to a large number of buyers Buyers have been requested to provide with deferred maturity There is no ownership, economic or personal connection between the business & The business is a manufacturing or trade company or a company delivering services The business is engaged in automotive, wood products, the textile or food

the buyer

industries, manufacture machines and equipment, electrical appliances, furniture, etc. Parameters for receivables:

They arise from a business contract based on the supplies of goods or delivery of Their maturity is between 30 and 120 days,

services,

They are before maturity, They are free of any rights or claims of third parties, Their assignment is not limited (e.g. pursuant to a business agreement), Prepayment invoices are not concerned, They are payable and enforceable in the amount and currency specified on the They may not be set off against the buyers receivables, The annual volume of receivables suitable for assignment will be at least CZK 30

invoice,

million. Factoring, a better option than business loan Many business owners who need financing start their financing search by looking for a business loan or a business line of credit. Although business loans and lines of credit are well known products, they are very hard to get. And in reality, few business owners actually manage to get them.

In certain instances, Invoice factoring may be a better and easier to obtain alternative. There are three conditions that can determine whether factoring is a better alternative than a business loan:

1. Are the clients slow payments hurting the growth? Do they take up to 60 days to pay? 2. Is company turning away bigger sales because company lacks working capital? 3. With the right financing, does the business have significant growth potential? If the answer is yes to these questions, then chances are that factoring the invoices will be better for than more traditional business financing products. Invoice factoring provides company with financing based on its invoices, eliminating slow payment cycles and providing it with money to pay rent, meet payroll and expand its business.

Since factoring is tied to the sales potential, it does not have the arbitrary use limits that business loans have. The more the business grows, the more financing the company qualify for. This makes it an ideal product for businesses that have significant growth potential. Factoring (or receivable factoring as it is also known) is easy to use. Once company have invoiced the customers company send a copy of the invoice to the factoring company. The factoring company, in turn, advances the company up to 90% of their invoice and waits to be paid by their client. Once its clients pay for the invoice, the transaction is settled. In effect, by financing the invoices company eliminate the slow payment problem. Company accelerates its cash flow, enabling itself to pay for its obligations, take new opportunities and grow its company.

In terms of cost, factoring is a very competitive product. Factoring fees range from 1.5% to 3% per month, making it an affordable product.

[C] Selecting the Right Invoice Factoring Company: Selecting the right factoring company for the company can be a very complex task. Given the importance of the factoring relationship to the companys ability to succeed and grow, it is critical that company does the proper due diligence when selecting a factoring partner. Here is a list of some of the criteria that are important when selecting a factoring financing company: Factors Comfort Zone: Almost every factoring company will advertise that they can work with an account that requires as little as $10,000 per month and as high as a few million dollars per month. Although that may be true in principle, the reality is that managing a small volume account is very different from managing a multimillion dollar account. Most factors tend to develop

a comfort zone or preferred specialty when it comes to client size. When selecting a factor, always ask about the size of their typical client. Ideally, the size of the business should not be significantly below or above that figure. Monthly Minimums: Most factors will only take clients that commit to transact a minimum financing volume every month. The advantage of committing to monthly minimums is that the factor will offer the company better terms. The main disadvantage is that if the factored volume drops, your company could be liable for making up the difference in fees. When selecting a factor, be sure to select one whose minimums are well below the expected minimums, or better yet, try and find a factor with no minimums. Recourse vs. Non Recourse: Recourse is a term that defines the ability of a factor to resell the invoices back to a client if an invoice does not get paid within a given period of time. Most factoring companies prefer to operate in recourse mode. However, there are a number of factors who offer nonrecourse agreements. Under a non-recourse agreement, the factor will absorb the losses on an invoice if the account debtor becomes financially insolvent or bankrupt. In effect, nonrecourse factors offer some protection against bad debt. Although generally better with a non-recourse factor, most recourse agreements work well enough. Contract Duration: Typically, receivable factoring contracts require a minimum term of one year or more. Whereas longer-term contracts enable a factor to offer you better pricing, they can also lock your company into a factoring arrangement that outlives its usefulness. Your best bet is to try and find a factor that will allow you to easily terminate a contract (giving reasonable notice) once the service has outlived its usefulness. Fee Structure:

Accounts receivable factoring fees vary significantly across the industry and are usually dependent on a) b) c) the The financial your duration strength monthly of your of your contract customers and

volumes

d) the payment cycle of your receivables. The fee (also known as discount) can be close to 3% per month for small ticket deals (less than $30K per month) to as low as a 1.5% for companies that wish to factor several hundred thousand of dollars. Also, be sure to understand your factors fee structure thoroughly before signing the agreement as some factors have complex fee structures. Level of Service: A very important criterion when selecting an invoice factoring company is choosing a company that will give you the appropriate level of service. The industry is very diverse, and there are many factors that charge very low fees and provide a very impersonal mass approach to service. Conversely, there are factors that provide a high touch level of service, for slightly higher rates. Most companies tend to choose the factor with the lowest rates (and usually lowest level of service) thinking that they will save money. In the long run, they end up regretting the decision. You are usually better off looking for a factor that offers a better service, even if it comes at a slight premium. Should company work with a factoring broker/consultant? One way to simplify the process of selecting a factor is to work with a factoring broker. A good broker will help the company determine if factoring is the best solution for the company and will help it find the factor that is best suited to serve it. The broker will also help the company position its company to a factor in the best possible way, maximizing the chances of getting the funds, the company needs, with the best possible terms. One of the most significant advantages of working with a factoring broker is that they will help the

company by saving time. The process of evaluating a factoring company can be both tedious and time consuming. A broker can help sidestep the issue since they will do all the work of finding the best factor for the company. Lastly, most factoring brokers are compensated through a finder fee by the factoring company, so company will not have to pay them any fees for their service.

METHODOLOGY

METHODOLOGYThe study is based on personal decision, interview schedules, documentary observation; the data has been collected from the executives of the organization and through the published sources.

RESEARCHThe research work is restricted only to the BEETEL DISTRIBUTION SYSTEM with UTI BANK and NEW INDIA INSURANCE COMPANY. The study is based on the outcomes of personal interviews and documentary observation. But the extreme care has been taken to involve the constructive suggestion from the executives. The success of research basically depends upon the method, which is adopted to solve the research problem i.e. a) To collect desired information and data in a systematic manner. b) Appropriate selection of method is necessary. The first & foremost step in any research procedure is:-

STEP 1: Problem FormulationIt is a very important step which has to be understood properly and clearly on which the study is based because it tells the scope of the study and it should not go beyond it nor should execute some irrelevant aspect. In this case the study is based on FACTORING system adopted by BEETEL for the distribution business of MOTOROLA handsets.

STEP 2: Objectives of the Study

After the problem formulation the objectives should be clear through which specific type of information can be collected. The objective of this is to study about the concept of Factoring used in distribution business.

STEP3: Determine source dataThe third step includes the collection of data, which is from the source i.e. primary secondary data. After the collection of data, it should be organized and analyzed to check whether the objectives are fulfilled or not. After analyzing the data investigation of research had worked out with the help of following steps: Research design Tools & techniques

RESEARCH DESIGN:A research is an arrangement of conditions for the collection & analysis of data in a manner that aims the research purpose and achievements of goal with economy in procedure depending on research problem. The study of Factoring is generally based on documentary evidences.

TOOLS AND TECHNIQUES:In order to conduct the study the following methods were adopted.

1. Personal Discussion: They are certain information related to the subject who isknown employees of the office so through connecting the employees and executives the information is gathered.

2. Direct Personal Interviews: The investigator personally approaches to theperson and asks them to furnish information, which is of material input for the enquiry. Therefore these ideas, suggestions views are collected on the topic through interview.

3. Documentary observation: The investigator consulted the secondary sourceslike books, unpublished material from library, internet and the area office.

COLLECTION OF DATAPrimary data: are those that are collected for the first time by the investigator and theprimary data used ad collected for this study are: Direct Personal Interview Indirect Oral Investigation

Secondary data: are not collected but obtained from the published and unpublishedsources and the secondary data collected for this study are: Published data through newspapers, magazines, research institutes, journals and books. Unpublished data through scholars, libraries, area office.

FACTORING OPERATIONS & CREDIT CONTROL IN BEETEL

PARTIES INVOVLED IN THE FACTORING PROCESS USED BY BEETEL FOR THE DISTRIBUTION OF MOTOROLA HANDSETS Bharti Teletech Ltd. Company (Insured). Town Distributors (TD) Buyer. UTI Bank- Factor. The New India Assurance Co. Ltd. & at radius - Credit Insurance

company.

BEETEL AND THE TOWN DISTRIBUTORS (TDS)

Bharti Teletech Ltd (BTTL) is an existing established Company engaged in the manufacture and trade, including export, of a large range of telecommunication equipments/products and spare parts and accessories thereof and is appointed as a distributor by M/s. Motorola India Pvt. Ltd., (MOTOROLA) to distribute in India its products. BTTL has therefore appoints various Town Distributors (TD) for the sales and distribution of the Motorola products in India. The Town Distributor has the necessary expertise and the experience in the sale and distribution of the Products. The TDs are appointed for some specific territory and as the volume of business grows BTTL appoints new TDs to grab the growing market.

Master Agreement on BTTL letter head duly signed by Regional Credit Controller, copy shall be accepted and signed by the Authorised signatory of TD; BTTL Regional Office will further pass on a copy to the UTI Bank and HO. The following documents are collected from TD before their registration Registration form duly filled by the distributor Copy of TIN. NO Copy of the IT pan Number

Copy of the Memorandum and article of association in case of Pvt or Ltd company, copy of the partnership deed in case of partnership firm Four blank cheques in the name of Bharti Teletech Ltd Agreement copy duly signed by TD. Last three months bank statement. A letter containing the list of all the authorized signatories who sign the purchase order. Copy of last three year audited balance sheet and P/L account including any provisional financial for the current year. Certificate of net worth or personal balance sheet of proprietor/all partner (certified by a chartered accountant).

BTTL PROVIDE INTEREST

BEARING CREDIT FOR

30 DAYS

FROM THE DATE OF INVOICE TO ALL ELIGIBLE

BUYERS FOR THE MOTOROLA PRODUCTS AND SERVICES. To compensate the charges for interest for the period up to 15 days to the BUYER, BTTL give cash discount of 0.5% on the total invoice value by way of incentive on the Body of Invoice. Interest charged by the Bank for the credit period enjoyed, Buyer will have to pay Interest as per the rates applicable from time to time. All this helps in smooth functioning for the accounts for the town distributor as every transaction can be reconciled with the bank statements.

BEETEL AND THE NEW INDIA INSURANCE CO.

BTTL has taken credit insurance from The New India Assurance Co. Ltd. The insurance policy is taken on a turnover for Rs1500 cr at premium of 0.11% on the insurable turnover. The percentage for which the claim is reimbursed is 90% subject to condition mentioned in the annexure attached. In most of the cases the sales (invoice) of BTTL are covered under the credit insurance policy. According to New India Assurance Co. Ltd the Town Distributor is a person or legal entity who is legally liable to pay the BTTL for the goods delivered/services provided and: BTTL collected information on the financials of Town Distributors, the various documents which are verified and assessed regarding its credit assessment form, financial of the last three years, and net worth certificate. On the basis of this BTTL credit control officers assess the credit limit for the TD and send the recommendation to New India Assurance determine the credit limit of the TD on the basis of its assessment.

Thereafter New India Assurance Co. Ltd shall review, set and endorse the Credit Limit on basis of documents provided by BTTL along with recommendations of BTTLs Credit Controllers. The BTTL declare all Insurable Turnover pertaining to the preceding month for all the TDs. All this information has to reach the policy issuing office on or before the 15th day of each calendar month. If no sale has been made during a month, a nil declaration shall nevertheless be submitted to the Insurance Company. BTTL also declare details of the Whole Turnover every quarter in the form prescribed by the Insurance Company, so as to reach the policy issuing office within 15 days of the end of the quarter. BTTL has to submit its sales conditions to New India Assurance Co. Ltd for approval. The New India Assurance Co. Ltd. may require changes and/or the insertion of any clause that the Company deems useful. Any change in the BTTL general sales conditions must be submitted to The New India Assurance Co. Ltd. for approval. BTTL has to furnish to The New India Assurance Co. Ltd. promptly, any further information that the Insurance Company may from time to time require, in respect of sales made during the policy period. Maximum period of credit of 30 days which BTTL grant to any TD (at or prior to the original due date of payment) beyond the original due date with the prior written approval of New India Assurance Co. Ltd. If the payment is not given by the TD with in 30 days then BTTL initiate for recovery with TD and if the recovery doesnt make in next 6o days from the date of Due Date then BTTL go for file the provisional claim to New India Assurance and in the mean time the further billing of that particular default TD is stopped by BTTL.

OBLIGATIONS/RESPONSIBILITIES

OF

THE

BEETEL UNDER THE AGREEMENT:[A] Payment of premium and charges: The insured shall pay in full, on or before the commencement of the policy period, the provisional premium and other charges set out in the Schedule. The provisional premium is subject to adjustment as mentioned herein below. The Insured shall be liable to pay any additional premium, on the actual turnover to which this policy applies (i.e., the Insurable Turnover) and that may become due and payable after adjustment of the provisional premium referred to herein above while submitting the relevant declaration of turnover as per clause 6B mentioned below. If at the expiry of the policy, the Insurable turnover falls short of the estimated turnover, refund of premium may be allowed for the difference subject to the Company retaining a minimum of 50% of the provisional premium.

The insured shall also pay all stamp duty or similar Government charges or taxes, all bank collection and transfer charges and debt recovery charges if applicable.

The Insured shall not offset any amount owed to the Insured by the Company against any amount owed by the Insured to the Company unless otherwise agreed by the Company in writing.

If during the validity of the policy, the Insured agrees to grant longer payment terms than that mentioned in the proposal form/schedule to the policy, the Company reserves the right to revise the premium rate applicable to the relevant turnover.

[B] Turnover Declaration:The Insured shall also declare all Insurable Turnover pertaining to the preceding month, buyer-wise, so as to reach the policy issuing office on or before the 15 th day of each calendar month, in the form agreed by the Company. If no sale has been made during a month, a nil declaration shall nevertheless be submitted to the Company. The Insured shall also declare details of the Whole Turnover every quarter in the form prescribed by the Company, so as to reach the policy issuing office within 15 days of the end of the quarter.

[C] Declaration of overdue payments:BTTL has to declare to New India Assurance Co. Ltd, on or before the 15th of every calendar month, all invoices which remain wholly or partially unpaid for more than 60 days from the due date of payment, in respect of the sales made during the policy period and such declarations shall continue to be made to New India Assurance Co. Ltd even after the expiry of the policy period, so long as any such payment remains unpaid.

[D] Management of credit limit for the individual TDS:Following heads are covered under this agreement:

[1] Application:

Application for Credit limits in respect of each buyer has to be made to the Company in the prescribed format. The Company will inform the Insured in writing about its decision: i. To accept/refuse the Credit limit requested for any buyer. ii. About the amount of Credit limit sanctioned for each buyer and the period of cover. The Insured must furnish details of buyers who have consistently paid late (i.e. more than 30 days after the due date) in the last 12 months and any other information, which may affect the decision of the Company to grant cover. Application for extension of cover in respect of any Approved Buyer should be made one month before the expiry of the period of cover. In such cases, the cover for the buyer will be maintained until the NEW INDIA INSURANCE COMPANY refuses/reduces cover for the buyer, in writing.

[2] Operation:The Credit limit decision will take effect from the date of commencement of the policy if the application for the limit is received within one month of commencement of the policy. For all other applications, the limit will be effective from the date mentioned in the credit limit decision. The Credit limit is a revolving limit and will become automatically available to cover further sales as payments are received against outstanding invoices.The revolving limit will however cease to operate under the following circumstances: (I) Where there is already due from the Approved buyer a debt older than 60 days. (ii) When the credit limit for the Approved buyer has been cancelled.

[3] Cancellation of the credit limit of the TD:

The NEW INDIA INSURANCE COMPANY may reduce, cancel or suspend limits for any TD at any time without assigning any reason. Such decisions will be conveyed to the BTTL writing. However, all Insured Debts existing at the time of conveying the decision shall stand covered. The Credit limit shall stand automatically cancelled under the following circumstances:

When a provisional claim is filed/ should have been filed under the policy. When the Approved buyer becomes insolvent. When a credit limit has been refused. A total refusal is equivalent to a cancellation ofcredit limit. In such cases where the credit limit has been cancelled/refused, including automatic cancellation, the BTTL must reapply for credit limits if at a later date he wishes to continue selling to this TD.

[E] The TD will become insolvent in the following mentioned situations[1] INSOLVENCY of the approved buyer The buyer shall deemed to be insolventfor purpose of this policy when The buyer is declared bankrupt from the competent court of jurisdiction. OR A Receiver/Administrator/Liquidator has been appointed by the Court to manage his estate. OR An order by the Competent Authority has been made for compulsory winding up. OR An effective resolution has been passed for voluntary winding up provided that this resolution is not merely for the purpose of reconstruction or amalgamation.

OR an arrangement binding on all creditors has been sanctioned by the appropriate Court OR Such and other relevant conditions exist as are in the opinion of the Company substantially equivalent in effect to any of the foregoing conditions. The loss shall be confirmed by the relevant authority (such as Court, Liquidator, Receiver, Administrator) as being owed by the Approved Buyer to the Insured at the date of insolvency.

[2] PRESUMED INSOLVENCY OR PROTRACTED DEFAULT - by the Approved - Buyeris the failure of the Approved Buyer to pay to the BTTL, at the end of the waiting period, the whole or part of the Insured debt relating to the goods/ services delivered to and accepted by an Approved Buyer.

[F] Procedure for grant of Discretionary Limit:According to agreement between the BTTL & THE NEW INDIA INSURANCE COMPANY Where the Credit Limit required on a buyer is less than or equal to the Discretionary Limit mentioned in the Schedule, the NEW INDIA INSURANCE COMPANY LTD. may set a Credit Limit without reference to the BTTL, which shall be justified by either:

i. A written report from an independent credit agency dated not more than 12 months beforethe date of the oldest outstanding invoice, which supports the amount of credit given. If the report speaks for a lesser amount, then the NEW INDIA INSURANCE COMPANY shall be liable to pay only the Insured Percentage of that amount. ii. A written report from the buyers Bankers dated not more than 12 months before the oldest outstanding invoice which supports a figure at least twice the amount of credit given. If the reference speaks for a smaller figure, then the NEW INDIA INSURANCE COMPANY shall be liable for the Insured Percentage of half the amount spoken for.

iii. Good

trading

experience

obtained

within

a

12month

period

preceding

the

establishment of an Insured Debt. The Credit limit given should not exceed 125% of the maximum outstanding debt recorded with the Insured and satisfactorily paid. Good trading experience is where each month the buyer pays no later than 30 days after the due date for payment, subject to the payment of a minimum of three invoices within the due date of payment.

[G] Credit Control:i. The Insured must strictly follow the credit control procedures that are endorsed in writing to the policy, or if none, those that are detailed in the proposal form. Proof of this shall be submitted to the Company at the time of making of claim under the Discretionary Limit. ii. The Insured shall not make any settlement, arrangement or compromise for an Insured Debt unless a written agreement to this effect is obtained from the Company. iii. The Insured hereby agrees to monitor the payment performance of all Approved Buyers by keeping an age-wise receivables record of all amounts due and all buyer exposures against individual Credit Limits sanctioned/established and take all reasonable measures to recover the Insured Debts. The Insured hereby agrees to prevent any loss arising and should any loss arise, minimize it. iv. The Insured shall act in good faith and promptly inform the Company about any changes that they may become aware of in their or their buyers circumstances, including: Any idea or reason to believe that the buyer might not pay its debts. Where other suppliers stop delivering to a buyer because their payment record is poor (or they have concerns about the buyers solvency) If a buyer asks for extra time to settle a debt or to pay by installments.

If the buyer asks to extend the term of the bill of exchange When a buyers draft or bill of exchange or cheque is not paid on the date it is due or presented (regardless of late payment). If the Insured desires to start proceedings or action against a buyer. When a debt is partially or wholly unpaid beyond 60 days

[H] Stop Cover:Cover for new deliveries shall be stopped in circumstances where: A payment due from a buyer is unpaid for more than 60 days (whether the payment is insured or not). The BTTL has received notice from a responsible source that a default is likely to occur in respect of an existing or future outstanding payments. When the NEW INDIA INSURANCE COMPANY notifies the BTTL of stopping cover. When the credit limit for the buyer is cancelled as detailed in clause 6G of the Policy. When a cheque/bill has not been honored at maturity or where cheques have been returned unpaid. When legal proceedings have been instituted against the buyer for insolvency/default in payments.

[I] Claim Procedure in case of default made by the TD:BTTL has to Give prompt notice to New India Assurance Co. Ltd in writing upon the

occurrence of a default/delay in payment or the discovery of any event or circumstance likely to give rise to a claim under this policy.

Give prompt notice in writing to New India Assurance Co. Ltd if any amount

becomes overdue by a period equal to the Maximum Extension Period ( egg- 7days or 15days or 30days) from the original due date. If With in 60 days from the date of its discovery

BTTL does not inform New India Assurance Co. Ltd then the claim amount will not remain liability under this policy. Ensure that all rights in respect of the contract of sale and the Insured Debt are properly preserved and exercised.

If required by the New India Assurance Co. Ltd, take any measures that may be

required including the institution of legal proceedings. Within 90 days of the due date of the first unpaid invoice, BTTL has to submit a Ltd. BTTL shall also submit support documents such as proof of non-receipt of payment and quantum of payment due, proof of delivery such as invoice/LR etc. and such other documents to establish proof of actual sale. All documents shall be duly certified by a competent Chartered Accountant. In the case of an insolvency claim, the BTTL shall submit a duly filled in claim Submit a filled in claim form as prescribed by New India Assurance Co.

Provisional claim as follows:

form within 5 days of becoming aware of the event. BTTL shall submit confirmation of debt from the liquidator, trustee in case of bankruptcy, or other authorized agent, to receive payments.

[J] Recovery Procedure:Recoveries consist of any amount received by BTTL from TD or from any other source whatsoever towards the payment of the Insured Debt.

All recoveries received by and on behalf of the Insured in respect of any debt of the buyer to the Insured shall be treated as recoveries hereunder regardless of any designation as to the application of funds or source from which such payments are received and shall be applied chronologically against the outstanding Insured Debt in order of the due dates. (Or extended due dates where applicable). BTTL take all steps that are necessary and expedient which New India Assurance Co. Ltd, may at any time require, to effect recoveries, whether from TD or from any other person from whom such recoveries have to be made.

[K] Misstatement:According to the agreement this policy shall be void ab initio, and all the premiums paid hereon shall be forfeited to the BTTL, in the event of any misstatement or non-disclosure of any material fact/information. Without prejudice to any rule of law, it is declared that this Policy is given on the condition that the BTTL has at the date of issue of the Policy disclosed and will at all times during the operation of this Policy promptly disclose all facts in any way affecting the risks Insured.

[L] Cancellation of the agreement:According to the entered the NEW INDIA INSURANCE COMPANY any may at any time cancel this policy by sending the BTTL 30 days notice by registered letter at the BTTLS last known address. The NEW INDIA INSURANCE COMPANY shall however remain liable for any loss/ claim in respect of sales transactions made to Approved Buyers prior to the date of cancellation. If, at the time of cancellation of the policy, the Insurable Turnover falls short of the annual estimated turnover, refund of premium shall be made for the difference, subject to a minimum retention of 50% of the Provisional Premium.

This Policy shall stand cancelled automatically on the insolvency of the BTTL. In this event, the NEW INDIA INSURANCE COMPANY shall be entitled to retain all premiums paid, and receive and retain all premiums due and payable up to and including the effective date of such insolvency.

BETEL AND THE UTI BANK

BTTL, engaged in the business of manufacturing and marketing of wide range of Telephones and marketing & distribution of GSM Phones, DSL Modems & other allied Broadband products and set top boxes and supplies the same to the sales channel intermediaries, corporate, institutions etc., has approached the bank and bank has agreed to purchase receivables from its buyers, without RECOURSE to BTTL. Considering the business interest of both the parties it has been agreed to enter into an agreement to sell and purchase the receivables and to specify their respective roles in the scheme and On October 9, 2006 BTTL and the UTI BANK entered into the factoring agreement. According to this agreement, UTI bank will purchase the receivables of the approved buyer of the BTTL, not more than 21 days old, and charge 9.25% interest p.a. at the and of every calendar month by BTTL/BUYER for the credit period i.e. from the date of payment by the bank till the due date of payment by the approved buyer.

PROCEDURE THAT BOTH THE COMPANIES FOLLOWS FOR THE FACTORING BUSINESS:-

BTTL will raise the invoice on its buyers and shall hold the accepted invoice, LR

and other relevant documents, title and interest as the trustee of the bank in trust in accordance with the terms of this agreement. BTTL will send all the relevant documents to the bank within 5 days from the date of demand by the bank. In case of non receipt of the above documents, bank retains the right to claim the amount of the invoice from the BTTL provided that payment is not received from the debtor. BTTL shall mail all the details of the invoices raised on the buyer to the bank. After the verification of the details of the invoices, bank will purchase the

receivables of the BTTL and will issue a pay order in the favors of BHARTI TELETECH LTD. on the same working day. The pay order will be issued net of interest. All payment against the invoices purchased by the bank shall be made at agreed

centers. BTTL shall request the buyers accordingly. Responsibility of collecting the payment from the buyer and depositing the same in

the bank shall be on the bank alone. Each party shall bear their respective expenses in connection with the agreement. The agreement can be terminated by either party, upon completion of one year from

the date above mentioned, after giving a three months (3 months) notice in writing to the other party. If any of the party to the agreement does not perform its duty under this agreement,

other party may choose to terminate the agreement, if the same is not ratified/ set right within 30 days of being intimated. The agreement can be terminated by one party if the other party is declared

bankrupt by the court of law.

PROCEDURE FOLLOWED BY THE BEETEL FOR THE FACTORING BUSINESSMOTOROLA business is growing at a very fast pace in India and BTTL, being the national distributor of MOTOROLA products in India, is making major portion of their profits from the MOTOROLA business.

BTTL is carrying its distribution business of MOTOROLA products with the help of the Town Distributors. To inline with the distribution business of BTTL, Town Distributors have to maintain the huge stocks of the MOTOROLA products. So in order to help their Town

Distributors and to solve their liquidity problems, BTTL has arranged for the FACTORING services with the UTI BANK. Through this factoring service BTTL has arranged for providing 30 days credit on the MOTOROLA products for its Town Distributors though BTTL is not getting even a single day credit on the products from the MOTOROLA Company. BTTL approaches to the TDs for carrying the MOTOROLA business. BTTL makes TDS after verifying the financial strength of the individual or the partnership firm or the company. A unique registration number is allotted to every TD after their registration with the BTTL subject to reception of all the required documents.

Regional sales manager of the MOTOROLA works in coordination with the Town Distributors. Whenever a TD asks for the credit limit for doing the MOTOROLA business, Regional sales manager collects all the prescribed documents and the form from the Town Distributors and sends all these documents to the regional credit controller of the BTTL. Then the regional credit controller of the BTTL assesses the financial records of the TD thoroughly and decides a feasible credit limit for the TD according to the credit worthiness as shown by his financial reports. BTTL sends all the documents collected from the TD, for the said credit limit, along with the suggested credit limit to the NEW INDIA INSURANCE CO. LTD for its approval, as the company has got its TDS insured with the same. After receiving all the documents and a through examination and assessment of the same, NEW INDIA INSURANCE CO. LTD determines the credit limit of the TD. This credit can be same or over or below the credit limit as suggested by the BTTLS credit control manager. The NEW INDIA INSURANCE CO sends an endorsement letter to the UTI BANK & BTTL regarding limit set by the company for the TD.

After receiving the endorsement letter UTI BANK makes its own assessment of the credit limit and sets its own credit limit for the TD. Once the endorsement letter is received UTI BANK opens an account for TD. TDS are provided with the unique ID code with the UTI BANK. There can be difference between the credit limit set by the two i.e. UTI BANK and THE NEW INDIA INSURANCE COMPANY LIMITED but the limit set by the UTI BANK is applicable on the all the transactions between the UTI BANK and BTTL related to purchase of the invoices. If the BTTL follows the credit limit set by the NEW INDIA INSURANCE COMPANY LIMITED then BTTL have to bear the 10% risk over the invoices purchased by the UTI BANK. Now whenever a purchase order is received from a particular TD, it is verified against the credit limit sanctioned and the credit limit utilized by the TD. BTTL receives current applicable credit limit for every approved buyer from the UTI BANK on the daily basis. The current limit will be determined by considering:i. ii. All invoices raised during the previous day after 1600 hours and invoices raised during the day before 1600 hrs. All cleared Cheque s/Payments on same day before 1600.

After verifying the current applicable credit limit of the TD, BTTL dispatches the required material and issuer invoice for the calculated amount, for the goods dispatched, in the mane of the TD and get it signed form the authorized signatory of the TD. BTTL retains a copy of the invoice issued against the TD as per the agreement with the UTI BANK. BTTL then sends all the details of the invoice to the UTI BANK via mail. UTI BANK, on the reception of the details, issues a pay order net of interest in favor of BTTL for the invoice amount in its IDBI Bank account on the same working day, of the invoice date. In this course UTI became the owner of the goods dispatched to the TD till data the TD make payment for

the same to the UTI BANK with in 30 days of the date of purchase of invoice.

TDS have to make payment to the UTI bank at their agreed centers. All the TDS operate through specific accounts with the UTI BANK. UTI BANKS sends a report on the payment pending against the TDs to the BTTL, on the daily basis. The credit controller of the BTTL goes through these reports and follows up with the TDs for the pending payments by them to UTI Bank.

FINDINGS

FINDINGS AND OBSERVATIONSFactoring services provide solution to the problem of liquidity. It can be used effectively to produce fruitful results with the limited capital. It enables a company to carry out its operations rather than spending time for chasing debtors. Factoring is an effective tool in the hands of management for increasing their sales by providing credit to their customers. Factoring helps the BTTL in generating cash for meeting their requirements without any other additional liability as factoring is not a loan. UTI bank purchases the receivables of the BTTL that BTTL generates against credit sales to the TDs and makes payment to the BTTL for the same. In short factoring benefits the BTTL in the following ways:-

[A] ACCELERATED CASH FLOW:UTI BANK advances BTTL cash on qualified accounts receivable immediately, so that BTTL can take care of operating expenses, taxes and other financial obligations rather than blocking its money in the debtors.

[B] NO NEW DEBT INCURRED:Because factoring is not a loan, BTTL assume no new debt or interest to pay. It merely exchanges one asset (accounts receivable) for another asset (cash) with the UTI bank.

[C]UNLIMITED WORKING CAPITAL:Factoring is the only source of business financing that grows as companys sales increase. The more accounts receivable company generates, the more immediate cash company can access. In this way factoring helps the BTTL in increasing its sales.

[D] NO COLLETERAL SECURITY REQUIRED:No Collateral Security is needed to avail finance. Company pays interest only on the actual funds utilized. Hence BTTL is getting additional money without any colleteral security.

[E] CONCENTRATE ON ITS OWN BUSINESS:The more the companys sales book grows, the more the UTI BANK helps the BTTL to turn their invoices into cash. This will enable the BTTL to respond more quickly to market opportunities. Collection of receivables is also managed by UTI BANK enabling BTTL to concentrate on its own core business activities.

[F] HIGH ADVANCE:UTI BANK is offering the highest advance rates to the BTTL. Company is obtaining up to 90% of the face value of the invoices with the TDs.

Suggestions & Recommendations

SUGGESTIONSBefore entering the BTTL, Factoring was an unknown concept to me, so it was really difficult to plan out the suggestions. But howsoever the suggestions which were planned after studying the Factoring operations in the BTTL, and understanding the concept of Factoring are:Company should consider the scope of the receivables factoring on the basic and the cordless phones that it manufactures as the factoring on the MOTOROLA handsets and the accessories is benefiting the company a lot in its operations. Since factoring is tied to the sales potential, it does not have the arbitrary use limits that business loans have. The more the business grows, the more financing the company qualify for. As BTTL is making a major a portion of their profits out of this distribution business using the factoring services of UTI bank only, steps should be taken to increase the sales of the MOTOROLA Products and the Accessories. Like, some kind of incentive can be given to the TDS showing outstanding performance in the sales of the MOTOROLA products. Other these kinds of incentives should be

introduced and increased to increase the transactions. This will increase the profits of the BTTL. Procedure and the documents required for the registration, of the newly established companies/partnership firms and the businesses, as the eligible buyer or the TD should be

clarified. The list of the documents required for the registration as a TD includes the last three years CA Certified balance sheets which a newly established business will not be having.

CONCLUSION

CONCLUSIONAfter the analysis of the factoring business of the BEETEL it can be concluded that the company is using the factoring services of the UTI bank very efficiently to convert their receivables in instant cash. Under this Factoring agreement, UTI bank purchases all the receivables of the approved buyers up to the prescribed credit limit from BTTL, without any recourse, and credit their account with the net amount on the same day. In this way, BTTL is able to generate constant cash flow without any additional liability and having tension for chasing the debtors for the payment resulting in a clam situation to concentrate on its main business. BTTL has also entered into an agreement with the NEW INDIA INSURANCE GROUP LTD. For the insurance of the receivables and thus nullified its risk. Because of these factoring services of the UTI bank, BEETELs turnover has increased manifolds resulting into maximum returns. On the basis of whole analysis done in the BEETEL over the factoring it can be finally said that these factoring services are benefiting the company

a lot in its operations and it should also consider the factoring for the basic and the cordless phones that it manufactures.