Factoring involves a company selling its accounts receivables or invoices to a third party, called a factor, at a discount. The factor then pursues collection of the invoices from the company's customers. There are several key steps in the factoring process: 1) A company sends an invoice to a customer for goods or services; 2) The company sells that invoice to a factor at a discount, usually receiving 80% of the invoice amount immediately; 3) The factor then collects payment from the customer, keeping the remaining 20% as a fee once the invoice is paid. Factoring can provide companies with immediate cash flow and reduce their credit and collection risks.

5. Why Firm Uses Factoring

7. Client
customer
factor
Buye
r
Sell
er
Financ
er
buysinvoices
collection

8. Process Involved In Factoring
Process
Commission fee

9. Factoring
Credit Sales
Send
Invoice
M
ake rem
aining
20%
less com
m
ission
M
akespayment
M
akes80%
paym
ent
Purchase orderSend Invoice
goods of Rs 1000 are requested
by buyer
Factor notify invoice of Rs1000 Rs 1000 goods are credit sold
with invoice of Rs 1000to buyer
Factor makes 80% i.e. Rs.800
Payment to seller
Finally customer pay Rs1000 to
Factor on end of credit period
Transaction Completed
Factor makes 20% Rs 200 but
less commission i.e. Rs.180
Payment to seller

11. Types Of Factoring

12. 1.
Income Receivable
2.
3.
4.
5.
Interest Charged
Condition
Credit Risk
Fees and Example
Country6.

13. 1.1.
2.2.
3.3.
4.4.
5.5.

14. 1.1.
2.2.
3.3.
4.4.
5.5.

15. 1.1.
1.1.
2.2.
3.3.
4.4.

16. 1.1.
2.2.
3.3.
4.4.
5.5.
6.6.

17. EXPORTER IMPORTER
EXPORT FACTOR IMPORT
FACTOR
Place purchase orderRequest limit approval of
importer
Same request is forwarded
to import factor
Conveys approval of importer
to export factor and factoring process began
Deliver good
Exporter send document for factoring
and receive 80% payment
Document is further send to import factor
and finally to customer
Importer pay amount
on due date to import factor
Import factor transfer the amount to export
factor And export factor transfer remaining
amount to exporter less commission

18. Important aspect of
Factoring

19. Industries Uses
INDUSTRIES
USE
FACTORING
INDUSTRIES
USE
FACTORING
TransportationTransportation
MedicalMedical
ServiceService
ManufacturingManufacturing
ConstructionConstruction

27. BIBLIOGRAPHY