Factoring is a financial transaction where businesses sell their accounts receivable to third parties at a discount, providing a fast way to raise money and shorten collections processes. There are several types of factoring, including recourse, non-recourse, maturity, and cross-border factoring, each carrying its own risk and benefits. While factoring offers advantages like liquidity and cost savings, it also comes with disadvantages such as high costs and potential buyer refusal to pay.

1. BY
ULHAS

2. Contents
PARTIES
WHAT
WHY
HOW
TYPES OF FACTORING
FUNCTIONS
FUNCTINING PROCESS
ADVANTAGES
DISADVANTAGES
CASE STUDY
CONCLUSION

3. Parties involved in factoring
1 3 2

5.  Factoring is a financial transaction in which a business sells its
accounts receivable to a third party at a discount.

6.  Fast way for companies to raise money
 Shortens the collections process
 It allows companies to bring in money without taking on new debt
 No need to have any collection department
 Transfer of risk

8. Recourse factoring
Non Recource Factoring
Maturity Factoring
Cross-border Factoring

9. Recourse Factoring
 UPTO 75% TO 80% of the invoice receivable in factor
 Interest is charged from the date of advance to the date of collection
 Loss or non-recovery will be born by the client
 Credit risk with client
 Factor does not participate in the credit sanction process

10. Non-Recourse Factoring
Credit risk is with the factor
Higher commission is charged
Factor participates in credit sanction process and approves credit limit to the
client to the customer
Loss or non-recovery will be born by the factor
Factor

11. Maturity Factoring
Factor does not make any advance payment t client
Pay on guaranteed payment date or on collection of receivables
Payment date is fixed by client
Nominal commission is charged
No risk to factor

12. Cross-border Factoring
It is similar to Domestic factoring except that has 4 parties
a)Exporter
b)Export factor
c)Import factor
d)Importer
 It is also called as two-factor system of factoring
 High risk at all levels

13. Functions of factoring
Finance for the supplier
Maintenence of the receivables account
collection of receivables
protection aganist the payment dafault
 “Full service” factoring offers all the above functions
 Rendering consultancy services
 Provision of finance aganist debts
 Sales Ledger management

15. ADVANTAGES
• Cost saving
• Liquidity
• Cash flow
• Credit certification
• Infromation flow

16. DISADVANTAGES
• High risk for both the seller and Factor
• Costly process for seller
• Buyers may refuse to pay back
• Misleading of funds

17. Case study

18. Conclusion