4. What is factoring?
Factoring is an ongoing arrangement between the
client and the factor, where the sales of goods and
services are made on open account terms and the
invoices for the same are assigned to the factor
regularly for the purpose of funding, collection and
sales ledger administration.
Factoring involves a long-term relationship between
the buyer and the seller with the whole turnover
being assigned to the factoring company.
7. Origin
Came into existance in the year 1920
It was not an organised sector that time
Association of British Factors(ABF) came in 1976
Nearly 90% of global factoring turnover comes from
USA & Europian countries
8. As of today,
Worldwide, factoring volume is more than
USD 700 billion a year
Spread over nearly 60 countries and
covering more than 1,00,000 businesses.
Particularly in developed countries, factoring
is an accepted way of conducting business.
14. Why use Factoring?
Through the use of Factoring receivables are
instantly converted into cash leading to improved
cash flows that can help funding of future growth.
It facilitate an efficient follow up of payments from
buyers, which is made possible through
relationships developed by factors with client’s
buyers.
Factoring provides credit protection for export
sales which enables to do business with buyers
who are unwilling to open Letters of Credit.
Factoring also provides other peripheral services
such as advisory services, credit assessment, etc.
18. Domestic Factoring
The factoring arrangement where all the
three- the factor, the seller and the buyer are
in the same country, subject to the same
laws.
19. International Factoring
The factoring arrangement, where the seller
and the buyer are in two different countries
involving co-operation between two factoring
companies, one in the seller’s country
(Export Factor) and the other in the buyer’s
country (Import Factor)
20. Major Types of Factoring
Non-Recourse Factoring - It is the most
comprehensive type of factoring
arrangement
It gives protection against bad debts to
the client. In other words, in case the
customer fails to pay, the factor will
have ‘no recourse’ to the client and
will have to absorb the bad debts
himself.
21. Recourse Factoring
In this type of factoring arrangement, the
factor provides all types of facilities except
debt protection. In other words, the client is
responsible for any bad debts incurred.
22. Invoice Discounting
In this type of factoring arrangement, only
finance is provided and no other service is
offered.
26. Advantages (to the client)
Immediate conversion of cash sale
Competitive credit terms
Accelerate the production cycle
Free from tensions
Assessing quality of debtors
Expansion of business
27. Advantages
To the Buyers
– Adequate credit facilities
– Getting periodical statement from the factor
– No affect on quality of goods, contractual
obligations etc.
28. Benefits of International Factoring
To the Exporter
– Deals with only one factor
– He gets specialised knowledge
– Risk of B/D are reduced
To the Importer
– Pays the invoice in the same country
– Gets better credit terms
36. How much advance can Client get?
Advances are made as a percentage of
invoice value based on criteria, such as,
quality of receivables, number and quality of
the buyers and client’s requirements.
Typically 80 % of invoice value is advanced.
37. Factoring is not suitable under following
cases -
a) where large volume of cash sales take place.
b) engaged in speculative business.
c) selling highly specialized capital equipments or
made-to-order goods.
d) where credit period offered to the buyers is
more than 180 days.
e) where there is Consignment Sale or 'Sale or
Return Arrangements'.
f) where sales are to the sister / associated
companies .
g) where sales are to the public at large, etc.
42. Large number of industries
Covered under factoring, including
automobiles, pharmaceuticals, textile,
garment and engineering.
In addition to the manufacturing sector, the
services sector industries, such as, traveling,
telecommunications, software services and
so on are also suitable for factoring.
