Factoring is a contractual relationship in which a bank transfers or undertakes to transfer money to a customer/seller in exchange for the customer’s monetary claim on a third party (the buyer) in connection with the sale of goods, the performance of works or the provision of services, and the customer/seller assigns or undertakes to assign to the bank the bank’s monetary claim on the buyer (conditional assignment of the claim), and to pay the remuneration set out in the contract.

• Fast receipt of funds by granting deferred payment terms to domestic and foreign buyers of company products.
• When working capital is needed.
• To be competitive in the market: the buyer is allowed to extend the grace period and the money is available immediately.
• Where a simplified administration process for the collection of funds from customers is relevant when an invoice is due for payment.

• The term of the factoring agreement is not more than 12 months (may be extended by agreement between the parties);
• The factoring advance is on average 80-90% of the VAT invoice amount;
• The maximum payment term is up to 90 days (longer by agreement between the parties).

A guarantee is an undertaking by a bank to pay a certain amount of money to the beneficiary of the guarantee in the event that the customer of the bank for whom the bank has given the guarantee fails to perform, or performs improperly, its obligations to the beneficiary of the guarantee.

Tender guarantee

A tender guarantee protects the entity that launched the tender (the beneficiary of the guarantee) against the risk of non-performance by the tenderer (customer).

A tender guarantee grants a monetary compensation to the beneficiary of the guarantee in the event that the tenderer withdraws its tender before the deadline or, after winning, the tenderer refuses to sign the contract, or fails to provide a performance guarantee, if so provided in the tender guarantee.

Contract performance guarantee

A contract performance guarantee reinforces obligations of the seller/contractor (customer) to a third party (the beneficiary of the guarantee) under the contract. This guarantee protects the interests of the buyer/customer (the beneficiary of the guarantee) and ensures that the seller/contractor (the customer) delivers the goods or performs the services on the terms and conditions set out in the contract.

The performance guarantee grants a monetary compensation to the buyer/customer if the (seller/contractor (customer)) fails to fulfil its obligations under the contract.

Advance payment guarantee

The advance payment guarantee ensures that the money paid in advance is refunded to the beneficiary of the guarantee in the event that the customer fails to deliver the goods or fulfil other contractual obligations.

Payment guarantee

A payment guarantee ensures that the beneficiary of the guarantee receives payment for the goods, works or services rendered. In addition to the claim, the beneficiary of the guarantee usually has to provide additional documentation (e.g. commercial invoice, bill of lading) proving that the beneficiary of the guarantee has fulfilled its contractual obligations and that the customer has not paid on time.

Beneficiary of the guarantee has an obligation to pay a certain amount of money in the event that the applicant fails to meet its obligations. The guarantee is irrevocable (unless otherwise specified in the text of the guarantee) and the applicant can not revoke or modify the terms of the guarantee without the consent of the beneficiary of the guarantee. The guarantee granted can serve as an instrument to enforce long-term contractual obligations.

The real or personal property proposed to be pledged must be appraised by independent property valuers. In this case, a line of credit is granted to the customer to provide guarantees

A documentary collection is a payment form in which the bank, acting on the instructions of the seller (exporter), transmits commercial and/or financial documents to the bank of the buyer (importer), specifying the terms and conditions under which the documents are to be delivered to the buyer (importer).

The conditions for documentary collection are the following:

• Documents against payment – D/P or cash against documents – CAD;
• Documents against acceptance – D/A;
• Other terms and conditions.

In the process of documentary collection, the bank of the buyer (importer) is not obliged to pay, but controls the process of paying for the documents and provides intermediation services.

• The documentary collection can be used when the buyer (importer) is unwilling to pay in advance and the seller (exporter) is not willing to be paid for the goods after they have been received by the buyer (importer);
• The documentary collection can be used when there is trust between the seller (exporter) and the buyer (importer);
• The documentary collection can be used when the political and legal system in the country of the buyer (importer) is stable;
• The documentary collection can be used when the country of the buyer (importer) allows unrestricted exchange of currency and import of goods.

A letter of credit is an irrevocable commitment by the bank of the buyer (importer) to pay the amount of the letter of credit to the seller (exporter), subject to the seller’s presentation of documentation that satisfies the terms and conditions of the letter of credit.

The Uniform Customs and Practice for Documentary Credits (UCP 600, 2007) govern the proceedings relating to letters of credit.

• The bank only pays to the seller (exporter) when the seller provides documentation that meets the terms and conditions of the letter of credit.
• The buyer (importer) can control the deadlines for dispatch of goods (provision of services).
• In the event that a letter of credit is issued with a deferred payment clause, the buyer (importer) has the option to make payment after the sale of the goods (the seller (exporter) credits the buyer (importer).

• The seller (exporter) has an irrevocable obligation from the bank of the buyer (importer) to pay for the goods shipped (services provided).
• The seller (exporter) can calculate/set the exact date of payment.
• In the case of a long-distance transport of goods, payment may be received before the goods reach the buyer (importer) (the buyer (importer) credits the seller (exporter)).
• The seller (exporter) may use a letter of credit as an additional instrument to raise short-term financial resources.

• The bank and the seller (exporter) shall enter into an Agreement of Letter of Credit Document Prepayment, which sets out the general terms and conditions of deferred letters of credit.
• The letter of credit must be endorsed by Urbo Bank UAB (at the request of the issuing bank (the bank of the buyer (importer)) or the customer (the seller (exporter)), i.e. the risk of the issuing bank (the bank of the buyer (importer)) must be acceptable to Urbo Bank UAB.
• Documents submitted under a letter of credit must comply with the terms of the letter of credit or any inconsistencies therein must be accepted by the buyer/importer.
• The bank pays up to 100% of the value of the documents, minus discounting.
• The discounting of documents can be combined with a credit to the customer (seller (exporter)) by means of a bill of exchange.