ALL ABOUT FACTORING IN FINANCE

1. FACTORING
FINANACE (FOR MANAGEMENT AND
COMMERCE
DIWAKAR EDUCATION HUB

2. • IN SIMPPLE LANAUAGE FACTORING IS THE FACULTY
PROVIDED BY THRD PARTY SO THAT THE SELLER
EXECUTE HIS ACTIVITIES DURING THE CREDIT TRADE
• SUPPOSE – INDIA (SELELR) ------ JAPAN(PUR)
ALL GOODS ARE TRANSFREED FOR THREE MONTH
CREDIT
SUPPOSE INDIA(SELLER) REQUIRED MONEY DURING THE
DURATION OF CREDIT
SO INDIA HAVE OPTION GO TO CHINA(FACTOR) AND SAY
THAT IS MY INOVICE AND MY DEBTOR PAY ME AFTER 3
MONTH YOU PAY ME AMOUNT AND YOU WILL COLLECT
MONEY TO JAPAN

3. • CHINA AGREE TO PAY (BUT DECITED SOME
DISCOUNT ) AND PAY 75 TO 80% TO INDIA
AND WHEN HE WILL GET THE PAYMENT BY
JAPAN WE WILL PAY THE REST AMOUNT-

4. TYPE OF FACTORING
• Recourse Factoring :
• In this type of factoring, the factor has
recourse to the client (seller of goods) if
importer(buyer of goods) become insolvent. In
other words, risk of account receivables
purchased from client becoming bad is borne
by client himself.

5. NON RESOURCE FINANCING
• In this type of factoring, factor has no
recourse to the client if the debt / account
receivables purchased turns out be bad or
irrecoverable. Factor can not claim the
amount from the client. As factor bear the risk
of non payment, commission charged for the
services is higher than recourse type of
factoring.

6. • Maturity Factoring :
• No advance payment is made by the factor to
client. Factor pay the client only after
collection of account receivables/ debt or on a
guaranteed payment date. The guaranteed
payment date is usually fixed taking into
account the previous ledger experience of the
client and a period for slow collection after
the due date of the invoice.

7. • Advance Factoring :
• Factor pay the advance varying between 75-85
percent of the value of receivables or invoice
factored. The balance is paid upon collection
or on the guaranteed payment date.

8. • Invoice Discounting :
• Under Invoice Factoring arrangement, factor makes
prepayment to the client against the purchase of book
debts and charges interest for the period spanning the date
of pre payment to the date of collection. The sales ledger
administration and collection are carried out by the client.
The client provides the factor with periodical reports on the
value of unpaid invoices and the ageing schedule of debts.
This facility is usually kept confidential i.e., the customers
(whose debts have been purchased by the factor) are not
informed of the arrangement. Therefore, this arrangement
is also referred as ‘Confidential Factoring’ or undisclosed
factoring.

9. • Full Factoring :
• Also known as Conventional Factoring, it
combines the features of both non recourse
and advance factoring arrangement. Full
factoring provides the entire spectrum of
services – collection, credit protection, sales-
ledger administration and short-term finance.

10. • Bank participation factoring :
• Under this arrangement, a bank participate in
factoring by providing an advance to the client against
the reserves maintained by the factor. For example,
assume that a factor has advanced 80 percent of the
value of factored receivables and the commercial bank
provides an advance limited to 50 percent of the factor
reserves. The client is required to fund only 10 percent
of the investment in receivables, the balance 90
percent being provided by the factor and the
commercial bank.

11. • Domestic and Cross Border Factoring :
• The basic difference in domestic and cross border
factoring is on account of number of parties
involved in factoring process.
• In domestic factoring, three parties are involved –
seller (client), Factor, Buyer
• While in cross border or export factoring, four
parties are involved in transaction – Exporter
(Seller/client), Importer (buyer), Export Factor,
Import Factor.