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Factoring soft in Russia.


We have seen the qualitative improvement of factoring services in the Russian market during the past few years and factoring software has become an important competitive advantage in the factoring market. Factors require automation to support the total factoring process from suppler data to cash management and Factoring soft allows factors to provide their clients with more flexible services and tailor-made products.


Factoring software will retain data regarding suppliers and debtors, calculate availability of funds, control funding limits, calculate commission rates and provide a fully automated accounting process ultimately providing full client service management. More specifically those leading Russian factoring companies using Soft can utilize the on-line information including the electronic receipt of invoices for determining availability of funds. Modules in the latest version of Soft include:operations, accounting, CRM, risk-management, analytical reports, etc. All leading factors could now be in a position to provide clients with electronic factoring.

There are three versions of Soft when it comes to making the right choice for your factoring business:

· Local Soft (i.e. Russia and CIS)
· International Soft;
· Home-made Soft.

In the 1990s most Russian factors had chosen, ‘Home-made Soft’ mainly due to the absence of good packaged software solutions and cost savings. Nowadays there are a number of Russian and foreign vendors offer factoring Soft on the Russian market But have only seen very few examples of international systems’ implementations. We had some (for example, Aquarius in Russian subsidiary of SG and 2 attempts to launch Kastle in 2 Russian banks), but finally these implementation either were not completed either were changed to local soft..

Local vendors tend to propose cheaper solutions and are able to quickly update their systems in accordance with changes in Russian law.

Comparison of approaches to factoring Soft choice is presented in the table below.




Local Soft

Corresponds to local legal requirements and business practice

Limited number of vendors and solutions

Rather low costs

Usually needs modification for each customer

Easy to modify

Difficult to evaluate quality/lack of references

International Soft

Large experience and number of launched projects

Higher costs

Large number of options and flexibility in customization

Does not correspond to local specifications (law, taxation, etc.)

Variety of different vendors and solutions

Difficulties in implementation (language barriers)

Home-made Soft

Independence from any external factors (easy to implement)

Longer period of development

Ability to make any modifications efficiently

Lack of implementation experience

Correspond to all customer’s needs

Difficult to calculate exact costs for development and implementation

There are several necessary stages involved in the development of a factoring system:

· Detailed spec of requirements
· tender
· implementation
· launch
· support

In assessing the business requirement we need to consider all the main factoring operations from the point of possible automation.

System must have customized blocks related to:

· client service management;
· factoring commissions;
· accounting entries;
· management of accounts receivable;
· Alerts and information for both factoring staff and clients
· reports.

Communication with different vendors during tender in the form of a, ‘beauty parade’ will help to clarify what is available, which product most suits the factoring companies needs and the ability to provide necessary individual modifications.

The following processes and functions are usually realized in the factoring system:

· Import of data from external accounting (bank) system,
· registration of information about new clients, factoring agreements,
· registration of information about new debtors, supply contracts,
· allocation of clients among client managers,
· calculation of statistical data, historical and current for all factoring transactions between the client and debtor, financing for each client and debtor,
· calculation of recommended financing limits and percentages of financing for debtor basing on external statistics,

· registration of financing limits for each client, group of clients,
· registration of financing limits and percentages of financing for each debtor and agreement,
· registration of new users and mangers and access level administration,
· registration of supplies,
· registration of transactions (financing, payments, returns, transfer of rest of payment),
· execution of ongoing control for managers, logging history and system changes,
· control of current balances on transit accounts of all clients,
· control for coming due dates for all clients,
· control of maturity dates where recourse to clients is involved.
· control of overdue payments.
· control for commission rates reviews for factoring agreements,
· display of mutual statistical information for the client service department: paid financing, received payments to transit accounts, received income, clients operations profitability,
· display of all statistic information of client service department and their workload,
· analysis of trends regarding clients and all portfolio (graphics of data changes);
· control of financing limits balances,
· control of transit accounts balances,
· control of active accounts balances,
· registration of accounting accounts numbers used during factoring transactions,
· generation of accounting entries basing on operations made by client

Ultimately factoring Soft allows for the simplification of factoring operations: sales, client service, accounting, and risk-management.

Reports act as a useful tool for control and analysis for a company’s management.

Launching a Soft product is not without some risks being encountered. The biggest risk being not choosing the appropriate system to correspond with both your business needs and existing business processes. Obtaining tenders from several vendors should help avoid such risk.

Another risk is the perceived impossibility to automate certain processes however, this can be resolved through customizing the system to meet special needs.

To sum up, the following criteria are considered crucial when making the final decision in chosing the system:

· system functional;
· system flexibility;
· cost and time of implementation
· availability and costs of necessary modifications and add-ons;
· support terms;
· References/ information about successful implementations.

Factoring system architecture usually includes a factor module which can be integrated with any other systems (bank systems, Internet-bank client, accounting software, etc.) with client modules to be installed at clients’ office. Client modules can provide information about financing, and accounts receivables functions in one module. Some systems also offer modules for debtors which can be very useful for reverse factoring or supply chain finance. The debtor then can confirm supplies and enter information about returns and write-offs on-line.

Russian law recently made some amendments aiming to extend use of digital signatures in commercial deals. There are now no legal barriers regarding the receipt of digital signatures in factoring deals both from clients and debtors. To utilize digital signatures a factoring system needs minimal integration and all parties will just need to sign appropriate agreements with a licensed data centre.

Further development of factoring Soft in Russia seems to be obvious to allow further integration with Internet technology and mobile devices (smart phones, pads). Current Russian factoring software systems still lack adequate modules for the management of international factoring operations. Most of soft don’t have such modules of they don’t allow to integrate with current international factoring e-systems (for example, IF Exchange). As soon as one is developed it can be integrated with FCI and IFG programs via web-interface.

 ILYA POKAMESTOV, Managing Director www.factoringpro.ru


Source: IFG

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