Financial Markets & Services (FMS)- Types of Factoring- MBA

1. A Presentation on The
Financial Markets & Services(18MS04F3)
4th Unit: Credit Rating
2nd Mid Topic: Types of Factoring Arrangements
Submitted by :
Immani Chandra Shekar
(Reg. No: 19K61E0020)

2. Factoring
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 The word “Factor” has been derived from the Latin word “Facere” which
means “To make or To do or To get things done”.
 Factoring may broadly be defined as the relationship, created by an
agreement, between the seller of goods/services and a financial institution
called the factor, whereby the latter purchases the receivables of the former
and also controls and administers the receivables of the former.

3. The Parties Involved in the Factoring Transaction are:-
• Supplier or Seller (Client)
• Buyer or Debtor (Customer)
• Financial Intermediary (Factor)
Parties Involved in Factoring:
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Who is a Factor?
 A factor is a financial institution that specializes in purchasing receivables
from business firms.
 Factor assumes the risk of collection of receivables and on the event of non
payment by debtors/customers bears the risk of bad debt and losses.

4. Process of Factoring:
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5. Services of Factoring:
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 Follow-up and collection of Receivables from Clients.
 Purchase of Receivables with or without recourse.
 Help in getting information and credit line on customers (Credit
protection)
 Sorting out disputes, if any, due to his relationship with Buyer &
Seller.

6. Types of Factoring Arrangements:
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 Recourse factoring − In this, client had to buy back unpaid bills receivables from
factor.
 Non – recourse factoring − In this, client in which there is no absorb for unpaid
invoices.
 Domestic factoring − When the customer, the client and the factor are in same country.
 Export factoring − It involves four parties, the exporter, the export factor, the import
factor and the importer. It is also called as cross border factoring.
 Disclosed factoring − If factor name is represented on the invoice of the goods or
services and asks customer to pay the factor.
 Undisclosed factoring − Factor is not mentioned on the invoice of the goods or services
by manufacturer.

7.  Advance factoring − In this, advance is paid to the client by factor against uncollected
receivables.
 Maturity factoring − In this, bank collects money from the customer and pays to firm
on due date or before.
 Invoice discounting − Clients collects payments from customer directly and pays to
the factor.
 Bulk factoring − In this, full recourse can be done by client and administration and
collection is done by his own ways.
 Agency factoring − In this, finance and protection against bad debts is done by factor,
administration and collection is done by client
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9. Department of Management Science
Thank You Sir
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