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Finance Management: Hospital: - WHO Definition
Finance Management: Hospital: - WHO Definition
Finance Management: Hospital: - WHO Definition
Management:
Art and science of organizational goals and objectives through people, by making the best utilization of (available) resources. Saving, payment and credit facilities of money Management of cash flows.
Resources:
Men Machines Material Money - Finance
Finance:
Normally means money Wider meaning Study of money management
Types of Hospital:
A. - Primary - Secondary - Tertiary - Multispeciality - Specilaity
B.
B.
Hospitals
- For Profit - Not for Profit
Proprietorship Advantages - Ownership of all profits - Easy to create and to dissolve -Tax savings - Unlimited liability - Small size - Difficulty in acquiring new funds
Disadvantages
Advantages
-Easy to attract talent and wealth -Incentives of future ownership to outstanding employees -Easy to grow and expand -Chance for better credit standing Dissolves with the death of a partner Hard to withdraw wealth Opportunity for dispute and ill will among partners.
Advantages
Corporation: It is a business that is owned by shareholders and has a legal status, similar to that of a person, it can make contracts, own property sue, and be sued. A corporation, has a legal existence that is separate from its owners. Advantages Limited liability Potentially long life Easy transfer ability of ownership Easy of attracting new capital Ability to grow More expensive form of organization Increased regulatory burden Lack of secrecy Double taxation.
Disadvantages
Trust
Advantages A separate legal entity Limited liability Potentially long life Ability to grow Public contributions Tax and other benefits Service to the community at an affordable cost (since profit is not the motive)
Disadvantages
- Regulatory burden - Control from government agency - Lack of accountability - Since profitability is not motive, there may not be incentive for growth.
Northcott : Book-keeping is the art of recording in the books of account the monetary aspect of commercial or financial transactions.
Book-keeping is the art of recording, classifying and summarising the financial transactions and events in a business. It is a systematic recording in terms of money in a set of books.
Features
Birds Eye View
Features
1. Art 2. Documentary support 3. Universal system 4. Recording monetary transactions 5. Own transactions with others 6. Process of recording 7. Recording in a given set of books
Analysis of the above definitions brings out the following features of Book-Keeping : It is an art of recording transactions scientifically. There must be a documentary support for each and every transaction. The system of recording should be universal. The recording is made of monetary transactions only. It means the transaction must involve money or moneys worth. Non-monetary transactions cannot be recorded. The business house records its own transactions with others. It is the process of recording data relating to accounting transactions in the books of accounts. Recording of transactions is made in a given set of books only.
Primary Objects
Sub-Objects
Ancillary Objects
To know creditors To know debtors To know capital invested To understand cash and stock
To review the progress To prevent errors & frauds To keep a check on property To provide valuable information for decision-making
While recording business transactions, the accounts are either to be debited or credited. Therefore, a book-keeper must be fully aware of the rules of debiting and crediting different types of accounts. The rules of Debit and Credit are as given below : Chart Showing Rules of Debit and Credit :
Account
Personal Account
Real Account
Nominal Account
Debit
Credit
Debit
Credit
Debit
Credit
Receiver
Giver
What comes in
Personal Accounts
DEBIT THE RECEIVER AND CREDIT THE GIVER
For Example : a) If cash is paid in Bank, debit the Bank Account as the bank is the receiver of the benefit. b) If cash is received from Bombay Port Trust, credit the Bombay Port Trust Account as it is the giver of the benefit.
Real Accounts
DEBIT WHAT COMES IN AND CREDIT WHAT GOES OUT For Example : a) When machinery is purchased, debit the Machinery Account as it comes in the business. b) When goods are sold out, credit the Goods Account as the goods are going out.
Nominal Accounts
DEBIT EXPENSES & LOSSES AND CREDIT GAINS & INCOMES
For Example : a) If rent is paid, debit Rent Account as it is an expense. b) If a Bad Debt occurs, debit the Bad Debt Account as it is a loss. c) If commission is received, credit the Commission Account as it is a gain.
Assets
Increase on the Lt. Hand (Debit side) Decreases on the credit (Rt. Hand side) (When cash is received, cash account is debited when it is paid the account should be credited i.e. the amount put on credit side.) Liabilities - Increases on the credit side and decreases on the debit side. Capital : The same as for liabilities. Expenses - Increases on the debit side and decreases on the credit side. Incomes or Gains - Increases on the credit side and decreases on the debit side.
Finance Management
Hospital: - WHO Definition:
A hospital is an integral part of a social and medical organization, the function of which is to provide for the population complete health care, both curative and preventive, and whose out patient services reach out to the family and its home environment, the hospital is also a center for the training of health workers and bio-social research.
Management:
Art and science of organizational goals and objectives through people, by making the best utilization of (available) resources. Saving, payment and credit facilities of money Management of cash flows.
Resources:
Men Machines Material Money - Finance
Finance:
Normally means money Wider meaning Study of money management
Types of Hospital:
A. - Primary - Secondary - Tertiary - Multispeciality - Specilaity
B.
B.
Hospitals
- For Profit - Not for Profit
Proprietorship Advantages - Ownership of all profits - Easy to create and to dissolve -Tax savings - Unlimited liability - Small size - Difficulty in acquiring new funds
Disadvantages
Advantages
-Easy to attract talent and wealth -Incentives of future ownership to outstanding employees -Easy to grow and expand -Chance for better credit standing Dissolves with the death of a partner Hard to withdraw wealth Opportunity for dispute and ill will among partners.
Advantages
Corporation: It is a business that is owned by shareholders and has a legal status, similar to that of a person, it can make contracts, own property sue, and be sued. A corporation, has a legal existence that is separate from its owners. Advantages Limited liability Potentially long life Easy transfer ability of ownership Easy of attracting new capital Ability to grow More expensive form of organization Increased regulatory burden Lack of secrecy Double taxation.
Disadvantages
Trust
Advantages - A separate legal entity - Limited liability - Potentially long life - Ability to grow - Public contributions - Tax and other benefits - Service to the community at an affordable cost (since profit is not the motive) - Regulatory burden - Control from government agency - Lack of accountability - Since profitability is not motive, there may not be incentive for growth.
Disadvantages
Goals of organization :
Role of finance: General objective of the organisation is to maximise its value. This is accomplished by making decisions in which the benefits exceed the costs. This is accomplished by i. Maximizing size : Every organization strives to grow in size. Of course size itself may not mean increase in value of organization. ii. Maximizing Profits : The basic objective of every business enterprise is the welfare of its owners. It can be achieved by maximization of profits. Financial decisions (investment / financing and dividend) of a firm should be oriented to maximisation of profits i.e. select those assets projects and decisions which are profitable. In other words, actions that increase profits be undertaken and those, that decrease profits are to be avoided.
Contd.
iv.
Financial Management
Definition: It involves the application of general management principles to a particular financial operation. An integrated and composite subject, which welds together, accounting economics, mathematics management and behavioral sciences and other disciplines as its tools. Financial management, as an integral part of over all management, is not a totally independent area. It draws heavily on related disciplines and fields of study, such as economics, accounting, marketing production and quantitative methods. Financial management optimises the output from the given input of funds. Financial management is the planning, organizing, directing and controlling and procurement and utilization of funds and safe disposal of profit, to the end that individual organizational and social objectives are accomplished.
Financial Decision Areas - Investment Analysis - Working Capital Management - Sources and cost of funds - Determination of capital structure support - Dividend Policy - Analysis of risks and returns Functions of finance: - Executive or Administrative - Incidental or Routine 1. Finance planning - Fore casting of resources of income and expenditure. 2. Control / Managing funds
3. Financial Decision making a. Financial decision b. Investment decision c. Dividend decision d. Methods of raising funds
4.
Liquidity function
5.
6. 7. 8.
Profitability function
Evaluation of financial performance Co-ordination with other departments Bringing performance closer to targets
Application of Financial Management in Hospitals: - Financial planning - Budgeting - Reduction in cost - Proper utilization of funds - Financial analysis - Fixed Asset Management - Working Capital Decision - Pricing of services - Investments - Tax planning - Arranging funds including donations - Control and monitoring
Fields of finance
Public Finance
Corporate Finance :
- Sources of funds
- Cost of capital
- Capital investment decisions - Working Capital Management - Dividend Decisions
3.
4. 5.
Specialist of finance
Co-ordinator Overall manager of financial function
6.
7. 8.
Normally the functions of the finance department are divided between Treasurer - Obtaining finance - Banking relationship - Investor relationship - Short term financing - Cash Management - Credit Administration - Investments -Insurance
- Financial Accounting - Internal Audit - Taxation - Management Accounting and control - Budgeting, planning and control -Economic Appraisal
Parties interested in financial status/performance of the institution People at the helm (Management) Share holders Investors Creditors Employees Customers Government Research Banks
Fundamentals of Accounting
Accounting :
A system for collecting, summarizing, analyzing, presenting and reporting in monetary terms, information about the enterprise. Accounting is a business language Main purpose is to communicate about the business enterprise. American Institute of Certified Accountants The art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which are in part at least of a financial character, and interpreting the results thereof:
Accounting Concepts :
Business Entity Concept Money Measurement Concept Cost Concept Going Concern Concept Dual Aspect Concept Realization Concept Accrual Concept
Systems :
Cash Mercantile
Assets
Increase on the Lt. Hand (Debit side) Decreases on the credit (Rt. Hand side) (When cash is received, cash account is debited when it is paid the account should be credited i.e. the amount put on credit side.) Liabilities - Increases on the credit side and decreases on the debit side. Capital : The same as for liabilities. Expenses - Increases on the debit side and decreases on the credit side. Incomes or Gains - Increases on the credit side and decreases on the debit side.
Branches of Accounting :
Financial Accounting
- Developed originally - Concerned only with the financial state of affairs and financial results of operations
Management Accounting
- Data collected from financial accounting - It enables management to discharge its functions properly, chiefly in respect of forecasting and budgeting, control over costs and revenues and decisions, both routine and strategic.
Cost Accounting
- It involves estimating cost in advance and detailed analyses. - It is used for making numerous decisions and for exercising control over the costs being incurred.
Financial Accounting
Primary Users External Users - Owners - Tax authorities - Lending Institutions Freedom of choice Governed by generally accepted principles Behavioural Implications Almost none Since it is statutory requirement Time Focus Records are historical Time Span Usually one year Statements prepared at fixed time intervals Coverage Primarily concerned with entire organization Exactitude Accuracy to the last digit desired Purpose Accounts at periodical intervals as prescribed by the authorities. Justification for use Statutory requirements Compulsory
Management Accounting
Managers within the organisation.
Can be subjected to varied interpretations and treatment depending upon individual circumstances. Its effectiveness depends on involvement of operating personnel and how they react to various reports. Emphasis on planning for future Flexible varying Frequency and timings depend upon the need and urgency even 15 years Parts could be covered Less emphasis on precision Has several objectives. Some data could be interpreted differently. Benefits derived from use optional.
Conversely the sum of money received in future is less valuable than it is today
Since a rupee received today has more value, rational investors would prefer current receipts to future receipts The time value of money can also be referred as Time preference for money. The main reason for time preference for money is to be in the reinvest opportunities for funds which are received early. The funds so invested will earn a rate of return; this would not be possible if the funds are received at a later time.
Valuation of Long Term Securities : Debenture / Bond is a security acknowledging long term debt issued by a corporate, firm or government to investors with the undertaking of paying interest, period a flow period till the security matures. They have Face value Maturity period Annual rate of interest Paying pattern Based on the above it is possible to calculate the valuation of the bond by applying the appropriate formula.
Valuation of Equities : Preferential Shares: They carry fixed rate of return / dividend.. In case of no stated maturity their valuation is similar to that of perpetual bonds. Valuation is done, as is done with bonds. Equity Shares: Value of equity shares is the discounted based on the value of all expected future dividends to be paid by the company to its equity shareholders. The discounted value represents the investors required rate of return on such investment. It is calculated based on the assumptions: i. Constant growth ii. No growth iii. Varied growth
Risk and Return : Compounding and discounting techniques of time value of money are applied to determine the value of different securities. The value of a security is viewed as the present value of the cash flow stream provided to the investor, discounted at a required rate of return appropriate for the risk involved.
Return: The (rate of) return on an asset/investment for a given period, say a year, is the annual income received plus any change in market price, usually expressed as a per cent of the opening market price.
Symbolically, the one-period factual (expected) return, R Dt + (Pt Pt-1 ) = -----------------Pt-1 Where Dt = annual income/cash dividend at the end of time period, t
Risk : The variability of the actual return from the expected returns associated with a given asset/investment is defined as risk. The greater the variability, the riskier the security (shares) is said to be. The more certain of the return from an asset, the less the variability and, therefore, less the risk. Measurement of Risk : The risk associated with a single asset is assessed from both a behavioural and a quantitative/statistical point of view. The behavioural view of risk can be obtained by using (i) sensitivity analysis and (ii) probability (distribution). The statistical measures of risk of an asset are (1) standard deviation and (2) coefficient of variation. Portfolio Risk : Conceptually, the risk of a portfolio can be measured in much the same way as the risk of a single asset. But their computation is to be differentiated as portfolio holdings confer certain benefits to investors as compared to holding of single assets. Portfolio investments provide an opportunity to diversify investments. Successful diversification may make the risk of a portfolio investment less than the risk of the individual assets. Therefore, the portfolio standard deviation, as a measure of risk, is not the simple weighted average of individual security standard deviations mainly because of the correlation/covariance between the return on different securities constituting the portfolio.
Diversification : Diversification through combination of securities can be used to reduce overall risk of a portfolio. By combining assets that have a negative (or low positive) correlation which ;existing assets, overall risk of the portfolio can be reduced. By combining negatively correlated assets, the overall variability of returns (risk) can be reduced. Even if the assets are not negatively correlated, the lower the positive correlation between them, the lower the resulting risk.
Risk Return Trade-off: The relationship between the risk and the required rate of return. Diversification through a combination of securities that are not perfectly positively correlated helps to lessen the risk of portfolio. Total portfolio risk has two components: systematic/ non-diversifiable /unavoidable risk and (ii) unsystematic/ diversifiable /avoidable. The systematic risk is caused by risk factors that affect the overall market / all securities. Even an investor who holds a well-diversified portfolio is exposed to this type of risk. The unsystematic risk is unique to a particular company/industry/security. This kind of risk can be reduced by diversification and through efficient diversification can be even eliminated. Therefore, the important risk is the systematic risk. Investors can expect compensation for bearing this type of risk, but not for bearing unsystematic risk. There is, thus, a trade-off between risk and return.
Legal and Tax Environment of financial decision making Depends on the legal status of the institution
- Individual - Partnership - Company - Co-operative - Charitable - Income Tax - Sales Tax - Excise Duty - Octroi - Customs Duty - Import/ Export rules - Double Taxation - Exemptions - Personal - Law of Partnership - Company act - Co-operative Act - Indian Trust - Bombay Trust - Income Tax Act gives details about Income Tax liability exemptions available on depending on the legal status - For goods sold - For manufacturing industry - For bringing the goods into a particular area - For importing goods - e.g. Taxation of the company - Taxation of the Share holder on dividend - e.g. 80 G of IT for charitable organizations
Financial Markets :
Origin and development of money currency : Barter system Currency Plastic cards Electronic transactions Gold eternal and universal currency. Money : Received for variety of purposes : i. Self requirements - Personal - Business ii. Asset creation iii. For future requirement iv. For security and Paid for variety of Purposes : 1. As commitment in exchange for product service 2. Repay the debts. 3. As investment to earn more money 4. As a security - Private Lenders - Concept of Interest - Concept of Security - Hypothecation - Pledge - Mortgage - Lease - Individual / collectoral securities
Commercial Banks
Nationalized Banks Schedule Banks Co-operative Banks Private Banks
International Banks
Concept of Foreign Exchange - Need - Restrictions Money changes
Mutual Funds
- Concept - UTI - LIC - Pvt. Mutual Fund Pension Schemes - PPF, Gratuity etc. - Government Securities - Bonds - Kisan Vikas Patra - RBI Bonds - Post Office Schemes - NSC - Insurance - Concept - Need
Different types of Insurance - e.g. Life - Fire and Accident - Loss - Professional Indemnity - Property Liability - Health insurance Reinsurance
Assets : - Property and possessions of the company - Represent how funds are utilized in the business Defined as valuable resources owned and controlled by a business and are acquired at a measurable cost. Characteristics : - Valuable resources - Owned and controlled by the company - Acquired at a measurable money cost Types Current Assets Represent facilities or assets acquired with an intention of sale or conversion into finished goods to be marketed in the near future. e.g. Inventory Sunday debtors Cash Bank Loans Advances
Fixed Assets : Represent facilities or assets acquired for carrying on business operations. These are required with an intention to use in business operations (which cover, manufacture administration and marketing) and not to market these in the normal course of business. e..g. Land Building Have longer useful economic life Machinery Furniture Fixed To use them Longer life Security Intention Current To market them Shorter life (Less than a year) Liquidity
Liabilities : Refer to claims on the assets of the business and indicate what business over to others Liabilities represent sources from where funds have been raised to finance the assets. Sources - owners - (owners funds) - Insiders - External or others e.g. loans Depending on Maturity - Secured - unsecured Current Liabilities : Obligations that are expected to be payable within one year. e.g. Short term credit - availed by business from suppliers of raw materials Accrued liabilities like Taxes, wages, salaries, interest & rent obligation. Current (upto one year) Long term
Short Term Loans OR - Account payable - Claims of vendors of business All credit purchases of goods and services. - Accrued liabilities Represent the payment received in advance for services to be rendered in future e.g. Rent received in advance Expenses of salaries and wages Dividends payable Estimated Liabilities : They represent obligations for which the amount can not be determined with substantial accuracy (Termed as Provisions) e.g Tax liability Warranty for goods Long Term Liabilities : These are obligations which will mature after a period longer than year - Secured - Unsecured e.g. - Public Deposits Long term loans from financial institutions Debentures or bonds. However, installment due on long term loans during that year is current liability
Current Assets: The assets, in the ordinary course of business can be or will be, converted into cash within one year, without undergoing a diminution in value, and without disrupting the operations of the firm. e.g. Cash Marketable Securities Inventory
Current Liabilities: The liabilities, which are intended at their inception to be paid in the ordinary course of business, within a year, out of the current assets or earnings of the concern. e.g. Accounts payable Bills payable Bank overdraft Outstanding expenses
The goal of working capital management is to manage the firms current assets and liabilities in such a way that a satisfactory level of working capital is maintained.
This is so because if the firm cannot maintain a satisfactory level of working capital it is likely to become insolvent and forced into bankruptcy. The current assets should be large enough to cover its current liabilities in order to reasonable margin of safety. Each of the current assets must be managed efficiently in order to maintain the liquidity of firm, while not keeping too high a level of any of them. Each of the short term sources of financing must be continuously managed to ensure that they are obtained and used in the best possible way. The interaction between current assets and current liabilities is therefore, the main theme of the theory of working capital management.
Total current Assets Difference between Current assets And Current liabilities. Current Assets (CA) Current Liabilities (CL)
Thus working capital is represented by the excess of current assets over current liabilities and identifies the relatively liquid portion of the total enterprise capital which constitutes a margin or buffer for maturing obligations, within the ordinary operating cycle of business. Working capital is the amount of funds required to finance day to day operations of a business. A circulating or floating capital. Used to obtain and retain the factors of production, which are necessary to make fixed assets productive. Working capital changes from day to day depending on the income and expenditure or cash inflow and cash outflow.
Low Current Assets : May result in orders from customers Technical bankruptcy Loss of credibility and reputation Also known as cost of liquidity or shortage cost Cost of liquidity Profitability Risk of Insolvency The organization decides its policy of working capital management taking into account the above principles. - Sources of Working Capital - Funds from business operations - Other incomes - Sales of non current assets - Long term borrowings - Issues of additional equity capital or preference share capital - (Uses) ? - Losses from business operations - Purchase of non current assets - Redemption of debentures and or preference - Dividends to shareholders
Components - Normally -
Determining the financing mix - (Approaches to working capital management) It is an important decision. Broadly speaking two sources from which funds can be raised for current financing. i. Short term sources ii. Long term sources e..g. Share capital Long term borrowings Internally generated resources like Retained Earnings What proportion of current assets should be financed by current liabilities and how much by long term resources is the decision which determines the financial mix.
There are three approaches : 1. Matching approach (Hedging approach) Permanent funds required - Financed with long term funds e.g. - Equity - Long term - Debt. Seasonal (Fluctuating) Funds required - With short Term funds.
2. Conservative approach: A relative high proportion of long term funds are utilized to reduce the risk. Use of short term funds is restricted to only emergency situations, or when there is an unexpected outflow of funds. The conservative plan for financing is more expensive because the available funds are not fully utilized during certain periods. Interest has to be paid for funds, which are not actually needed. 3. Aggressive Approach: Permanent and fluctuating working capital are financed by Short Term Funds. Higher profits but there are higher risks.
Debtors
Raw Materials
(Receivables) Finished Stock Work in progress
Working Capital
- Investment in current assets e.g. Cash Marketable securities Account receivable Inventions - Held for short term - Can be converted into cash easily (Liquid assets) - Fluctuating in nature WC changes Cash Inventory Cash
(6)
Growth and Expansion : As the company grows, working capital requirement also grows. Advance planning is required to meet this demand. Vagaries in the availability of Raw material : The availability or otherwise of certain raw materials on a continuous basis without interruption, affect the requirement of working capital.
(7)
(8)
Profit Level : Expected profit policy determines the working capital mix and volume. It in turn depends on i. Level of Taxes ii. Dividend Policy iii. Depreciation Policy
Price Level Changes : Changes in the price level affect the requirements of working capital e.g. rising prices require more funds for maintaining an existing level of activity.
(9)
(10) Operating Efficiency : Operating efficiency of the management is also an important determinant of the level of working capital. Thus, the level of working capital is determined by a wide variety of factors, which are partly internal to the firm and partly external (environmental) to it. Efficient working capital management require efficient planning and a constant review of the needs for an appropriate working capital strategy.
Computation of Working Capital: Two components of working capital (WC) are : (i) Current Assets (CA) (ii) Current liabilities (CL) In order to calculate we need (i) Holding periods of various types of inventories (ii) Credit Collection period (iii) Credit payment period to be known in advance. Also one should know - Budgeted level of activity in terms of production and sales. Estimation of CA : - Raw Materials Inventory - Work in Process (W/F) Inventory - Finished Goods inventory - Debtors - Cash and Bank Balances
Estimation of CL : - Trade creditors - Direct Wags - Overheads (other than depreciation and amortization) + Add contingency
CA CL = Working Capital
Warehouse Stock Finished goods, normally valued at the cost of goods sold Collection Period Credit Period - Receivable
Following steps : Determine level of activity during the period Determine the type and quantity of inputs required for one unit of output Ascertain the price of various inputs required for outputs Ascertain the production stage at which the various inputs are added to the production process. Ascertain the length of the production process (This is to ascertain the stock of work in process) Ascertain the policies regarding a. input storage b. finished goods stock c. credit to customers d. credit allowed by suppliers e. cash balance to be retained. Working Capital Management Technique 1. Ratio analysis 2. Fund flow and cash flow analysis 3. Schedules of changes in working capital 4. Management of various components of working capital
Trade Credit :
Credit extended by the supplier of goods and services in the normal course of transaction / business / sale of the firm. Usually cash is not paid immediately for purchases, but after agreed period of time. This, deferral of payment (trade credit) represents a source of finance. Advantages:
i. ii. iii. iv. It is an important source of finance Almost always automatic Flexible and spontaneous source of finance Negotiable
Disadvantages:
i. There is always a cost (although not stated) ii. Not to fulfill the terms may prove very expensive (High rate of interest)
Bank Credit : 1. Cash credit / overdraft 2. Loans 3. Bills purchased / discounted 4. Term loans for working capital upto 3-7 years 5. Letter of Credit It is an indirect form of working capital financing and banks assume only the risk. The credit being provided by the supplier himself. The bank undertakes the responsibility to make payment to the supplier in case the buyer fails to meet his obligations. Mode of Security : Hypothecation - movable property e.g. inventory of goods - custody in the possessions of the owners (not the bank) Pledge - custody in the possession of the bank Lien - Lien refers to the right of the party to retain goods belonging to another party until debt due is paid.
Mortgage : It is the transfer of legal/equitable interest in specific immovable property for securing the payment of debt. Possession is with the owner (not the bank). Charge : Where immovable property of one person is by the fact of parties or by the operation of law made security for payment of money to another and the transaction, does not amount to mortgage, the latter person is said to have charge on the property. Commercial Papers : Commercial paper is a short term unsecured negotiable instrument, consisting of usance promissory notes with a fixed maturity. It is issued on a discount on face value basis, but it can also be issued in interesting from. Factoring : It is an agreement in which receivables arising out of sale of goods/services are sold by a firm (client) to the factor (a financial intermediary) as a result of which the title of goods/services represented by the said receivables passes, on to the factor. Henceforth, the factor becomes responsible for all credit control, sales accounting and debt collection from the buyer(s) The factorer becomes responsible to absorb losses (if it happens).