1. FACTORING
meaning:
“ A financial transaction whereby a buisness sells its
accounts recievable to a third party at a discount in exchange
for immediate money with with which to finance continued
buisness.”
3. 1.Credit cover:
The factor takes over the risk burden of the client and
thereby the client’s credit it covered through advances.
2.Case advances: The factor makes cash advances to the client within 24
hours of receiving the documents.
3.Sales ledgering : As many documents are exchanged, all details
pertainning to the transaction are autometically computerized and stored.
4.Collection service: The factor,buys the recievable from the client, they
become the factor’s debts and the collection of cheques and other follow-up
procudures are done by the factor in its own interest.
5.Provide valuable advice: The factor also provide valuable advice on
country- wise and customer-wise risk.
4. ADVANTAGES OF FACTORING
1.IMMEDIATE CASH INFLOW: This type of cash finance shortens
the cash collection cycle. It provides swift realization of cash by
selling the recievables to a factor.
2.EVATION OF BAD DEBTS: Factoring is two types- with recource
and without recource. Under without recourse factoring.in
case of bad debts the loss is borne by the factor.
3.SPEEDY ARRANGEMENTS OF FINANCE: Factor provide funds
more rapidly than banking Companies offer quicker application
4. SALE, NOT LOAN: Factoring transaction is a transaction of sale,
not a loan, unlike other type of finances,factoring does not
increse in liabilities of the buisness.
5. 5. CUSTOMER ANALYSIS: Factors provide valueable advice and
insights to the seller regarding the credit strength of the party
from whom recievables are pending.
6.HIGHER CREDIT STANDITNG: With increased cash flow to the
client , he is able to to meet his liabalities promptly as and when
they arise.
6. DISADVANTAGES OF FACTORING
1.REDUCTION OF PROFIT
2.RELIABILITY OF CUSTOMER’S CREDIT
3.PRESENCE OF CONTINGENT LIABILITY
4. HIGHER FINANCE CHARGES
5.LOSS OF PERSONALTOUCH
6. EXAUSTING OF COLLATERAL SECURITY
7. CONCLUSION:
• Factoring helps smooth running of buisness by
getting short term credits from financial
institutions against accounts recievables.
