FACTORING

DEFINITION
Factoring may be defined as A continuing arrangement between the financial institutions or

banker on the one side and the business concerns

on the other , wherein the factors undertakes to record the transactions, collects and maintains the

book debts and bills receivables.

PARTIES INVOLVED IN FACTORING

Consisting of institutions factors , which is financial

The business concern , that is a client ; and

The customers who are the consumers of the

goods

STEPS INVOLVED IN FACTORING

order received by the seller from the buyer

Seller obtains details of buyers credit worthiness with

the factor
Seller executes the order Seller raising the invoice with the factor Factors paying 80% of invoice value to seller .

CONTD .
Factor sending statement of account to buyer for payment on due date

Buyer settling transaction with factor

Factor paying the balance amount to seller and

obtaining commission

TYPES OF FACTORING
Full factoring With recourse factoring Without recourse factoring Maturity factoring

Advance factoring

CONTD
Confidential factoring Suppliers guarantee factoring International factoring Bank finance factoring

BENEFITS OF FACTORING
Benefits of factoring

Financial factoring

Non-financial factoring

BENEFITS OF FINANCIAL FACTORING

It provides liquidity to the supplier as the tied up receivable is released

The funds released by the factoring agencies

facilitates more investment leverage and maximum return in fixed assets and of operational thereby increases the degree

BENEFITS OF NON FINANCIAL FACTORING

In non recourse provided credit security factoring, the supplier is

The money supplier is relieved of the botheration

of administering sales ledger and control of debts

DEMERITS OF FACTORING
There is no insurance available for credit The funds available to the supplier or sellers is limited

the limitation in the assignment of

complication in collecting them .

debts create

There is lack of proper credit information in the country

and it is affecting the functioning of factoring .

SOURCES OF FINANCE FOR FACTORS

Issue of shares and debentures Promoters contribution

Public deposits
Loan from banks From financial institutions , by issue of promissory notes

and by discounting of bills