GOOD MORNINGTO ONE AND ALL

TOPIC NAME:-FACTORING

Factoring may be defined as:- selling the receivables of a firm at discount to a financial organisation (factor).

The cash from the sale of the receivables provides finance to selling company (client). In simple words :- Company sells receivables

to factor who provide services to clients & provide advance to clients for future production and factor charge commission for collection of receivables.

Meaning:-

The Word Factor Derived From Latin Word “Facree”. It Means “ To Make Or To Get Things Done”.

Factoring Services was First started in USA “United States Of America” In The Year “1920”. And other rest part of worlds Introduced In The year “1960’s”.

According to years ago Factoring Services Have Become Quite popular All Over The World.

The Scenairo was something like that the “900” companies providing “Factoring services” In More Than “50” Countries.

ORIGIN FROM:-

According to V.A. AVADHANI:- “ Factoring is a service of financial nature involving the conversion of credit bills into cash”.

Defination:-

*Buyers Of Goods (i.e Customer):- Purchase goods on credit and pay off when credit period is over.*Seller Of Goods (i.e Client):- Supplied goods Provided to customers on credit terms.*Factor (i.e Agent) :- Who purchase invoice (receivables) from seller of goods and collect money from customers at maturity & provide advance to clients.

Parties OF Factoring:-

To receive from the trouble of collecting receviables.

Minimize the risk of Bad Debts.Better credit control policy.Working Capital requirements.Market information.

OBJECTIVES OF FACTORING

Conversion of credit bills into cash. Purchase of credit bills & collect Receiveables. Risk associated. Financial intermediary between “Buyer & seller”. Handling Collection in efficient manner. Advisory to clients. Protection from ‘Bad Debts’. Solve Problems relating to receviables & delays &

defaults of credit. Responsible to make sales accounts , debt

collection ,etc. Credit monitoring by factor.

FEATURES:-

Provide 80% to 90% Finance against receviables.

Collect Cash against Receviables. Furnish reports to client. Sales ledger administration ( accounting

work). Non- Recourse Factoring. Provides information (sales analysis,

overdue, marketing, finance ,etc).

Functions:-

Acceleration of production cycle. Additional sources. Adequate credit period for customers. Advisory services. Competitive terms offer. Higher Credit Standing. Improves Efficiency. Reduce Cost.

Pros:-

Over confidence. Chances of fraud. Lack of professionalism. Not suitable for small companies. Causes Delays. Affects image of client. Not suitable for one time sales. Increases the cost of finance.

Cons:-

Lack of awareness. Banks better placed to offer such services. Availability of better options. Non availabilty of credit insurance. No notification from states with regard

under waiver stamp duty. No access to debt recovery platforms. Fake bills. Limited reach.

Challenges To Factoring In India:-

Recourse Factoring. Non recourse Factoring. Maturity Factoring. Advance Factoring. Invoice Discounting. Domestic Factoring. Cross Border Factoring. Invoice Factoring. Full Factoring. Reverse Factoring. EDI Factoring. Disclosed Factoring. Un -disclosed Factoring.

Types Of Factoring:-

International Factoring

Factoring is a financial service covering the financing of accounts receivables in domestic as well as in international trade.

International factoring is a service which helps the exporter and importer to trade on account.

The client can choose any type of international factoring depend upon exporter clients needs and his price bearing capacity.

Meaning:-

Single / Direct Factoring System. Direct Export Factoring. Direct Importing Factoring. Back- to- Back Factoring.

Types of International Factoring:-

Company image distortion. Constraints. Cost. Insurance. Losses. Possible harm to customers.

Major Demerits Of International Factoring:-

Conculsion:-Hence ,We conculde that Factoring is a Helpful Service For Financing a Business till Buyer provides Money to the Seller, but sometimes it Creates Company Distortion or losses due to the Factor Behaviour towards Customers.