document would not make the payment (risk incurred), the bank, as the holder of the valuable documents, would take an action in court to reclaim the money... Determ[r]
(1)DISCOUNT &
FACTORING
ACTIVITIES
(2)Concept
Discount is a transaction that the Bank
will pay in advance for bills-of-exchange
or undue valuable documents at the
request of the beneficiary
Helping the holder (beneficiary) to have
money to meet payment needs
Making undue valuable documents
(3)Subjects & Discount
Conditions
Valuable documents to be discounted:
Bill of Exchange: The seller makes an order for the buyer to
pay at a specific of time
Bond: (Bond) - Government bonds; - Bank bonds; - Corporate
bonds
Other debt papers: Deposit certificates, savings books,
promissory notes
Discount conditions:
Subjects participating in the discount have full legal status,
legal address, have the same location with the discount
bank
Valuable documents to be discounted must be issued and
(4)Discount value & Discount
period
Discount value: is the value at maturity of the value documents
For a Bill of exchange: The amount indicated on a bill of exchange For a Bonds are divided into types:
Type 1: Periodical interest payment = Face value + periodic
interest
Type 2:
o One time interest payment in advance = Face value
o Many times interest payment in advance = Face value + interest
payable
(5)Discount rate
Discount rate = loan interest rate / (1 + loan interest rate)
Discount rate = Discount interest + Commission + Discount
fee
-
Discounted interest =
(Document’s value * Time of receiving discount * Discount
rate)
365
-
Commission = Document’s value * Commission rate
-
Discount fee = Document’s value * fee’s rate
Remaining value of document = Document’s value - Discount
(6)Note
During the disocunt period, if the the bank
needs money, these value documents can be
re-discount at the State Bank or at another
commercial banks
In the case as at due date, the issuer of value
(7)Example
On July 1, 2017, VietinBank accept to discount of Bonds with information is as follows:
- Face value: 500,000,000 VND; - Term: years;
- Issued date: January 1, 2016; - Maturity date: January 1, 2019;
- Interest is paid annually: 10%/year
- Bonds’ holder: An Phuc Company; - Issuer: State Treasury - Discount interest rate: 14%/year; - Commission rate: 0.5%
Required:
1 Determine the discount value of the bonds?
2 Calculate the revenues receivable by the Bank?
3 What is the amount the bank must pay An Phuc Company?
(8)Factoring
Concept: This is a financial activity in which a bank buys
back the liabilities of an entity (mainly long-term supply
contracts of large customers), often on without resource
Advantages:
Help the seller convert debts into cash to immediate
solvency for business operations and reproduction
Save on the costs associated with tracking loan recovery
Help buyers buy goods immediately, promptly meet the
(9)Members of factoring
activities
Without recourse
factoring
Applying to “trusted-
customers”;
The seller is guaranteed
100% payment by the
bank;
The bank is at risk when
the buyer refuses to pay
partly or in whole of the
debt
With recourse factoring
Commonly applicable to all customers;
The seller cannot
guarantee 100% payment by the bank;
(10)Determining the amount of
factoring
Conditions to be accepted factoring by the bank
include
:
- Deposit amount
- Have a current account at the bank
- Pay factoring fee in full
Amount of factoring
= Amount payable - Advanced
(11) On January 10, 2020, Saigon Bank signed a VND 200 million factoring contract with Vinh Tan Company, contract term of months, factoring fee of 1.1%/year Vinh Tan Company must deposit 20% of value of contract
On July 10, 2020, An Thanh Company submitted the “factoring commitment” issued by the bank to Vinh Tan Company and requested the bank to pay the amount of VND 150 million with the reason that Vinh Tan Company has not paid the purchasing goods on time
The Bank has checked and made payment to An Thanh Company Required: Calculate the amount of factoring that the bank had paid on behalf of Vinh Tan Company?
Assume that: The balance account of Vinh Tan Company at January 10, 2020 and July 10, 2020 was VND 60 million & VND 20 million, respectively