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Factoring transactions decline sharply in Azerbaijan

13 January 2009 14:12 (UTC +04:00)

Baku. Vahab Rzayev - APA-Economics. As of December 1, the amount of factoring transactions reached AZN 0.58 million, a 94% decline on eleven months ago and a 97.2% drop on a month ago
Factoring is a financial transaction whereby a business sells its accounts receivable (i.e., invoices) at a discount.
Also, Azerbaijan-based banks carried out letters of credit worth AZN 37.14 million, up 2.9 times on the same period last year.
A letter of credit could be used in the delivery of goods or the completion of a service. The seller may request that the buyer obtain a letter of credit before the transaction occurs. The buyer would purchase this letter of credit from a bank and forward it to the sellerâ€™s bank. This letter would substitute the bankâ€™s credit for that of its client, ensuring correct and timely payment.
The volume of credit transactions on bank guarantees has fallen to AZN 0.1 million in the country as at December 1, 2008, compared to zero a month ago.
A bank guarantee might be used when a buyer obtains goods from a seller then runs into cash flow difficulties and canâ€™t pay the seller. The bank guarantee would pay an agreed-upon sum to the seller. Similarly, if the supplier was unable to provide the goods, the bank would then pay the purchaser the agreed-upon sum. Essentially, the bank guarantee acts as a safety measure for the opposing party in the transaction.
Businesses couldnâ€™t considerably benefit from bank guarantees in Azerbaijan because of this segment remains undeveloped.