Factoring is a financial transaction where a business sells its accounts receivable to a third party called a factor. The factor provides immediate liquidity to the business and takes on the risk of default by customers. Factoring allows businesses to better manage their cash flow and reduces their balance sheet risks. It provides administrative relief for invoice management and allows businesses to leverage discounts. However, some companies prefer not to use factoring if they can finance growth internally or have their own debt collection operations.

1. By- Shashwat Dev
Roll no. 873

2.  Factoring is a financial transaction in which a business sells
its ‘receivables’ to a third party, called the factor.
 Accounts receivable are a legally enforceable claim for
payment to a business by its customer/ clients for goods
supplied and/or services rendered in execution of the
customer’s order.
 When factoring a company sells its receivables from
deliveries of goods and services to its customers
continuously to a factoring institution.
 In this way, the company gets immediate liquidity directly
from his debts. The Factor checks before signing the
contract and the ongoing creditworthiness of the customer
and takes under an agreed limit, the full risk of default.

3.  With immediate liquidity obtained by factoring a factoring
company may also procure-use income in purchasing
because discounts and special rates can be used. The
factoring institutions secured failure protection and
regularly updated information about the creditworthiness
of each customer (the debtor) ensure secure distribution
channels for factoring user enterprise.
 The outsourcing of claims management provides
administrative relief, especially in SMEs. The sale of
receivables reduces the balance and leads to better balance
sheet ratios, an increasingly important argument against
banks in times of "Basel II."

4.  Factoring is an alternative form of financing it helps in
protection against losses on receivables. Factoring is a
financial transaction in which a business sells its accounts
receivable. Factoring is a financial transaction in which a
business sells its ‘receivables’ to a third party, called the
factor.
 Accounts receivable are a legally enforceable claim for
payment to a business by its customer/ clients for goods
supplied and/or services rendered in execution of the
customer’s order
 It involves the ‘factor’ buying outstanding
invoices/claims/receivables from the factoring client
(usually a company/enterprise) on an ongoing basis

5.  A pre-defined percentage is kept with the ‘factor’, as
security deposit. i.e. invoices to a third party, called a
factor, at a discount.
 The sale of the receivables essentially transfers
ownership of the receivables to the factor, indicating
the factor obtains all of the rights associated with the
receivables.
 The Factor checks the ongoing creditworthiness of the
customer and takes under an agreed limit, the full risk
of default, before signing the contract.

7.  Factoring means we are surrendering our debtors to a third
party for some immediate realization of money. The
factoring agency will take care about the realization of
debtors. But immediately the company) will receive certain
amount(not full amount of debtors) against the debtors.
Where as leasing can be done against the assets. There are
2
types of lease.
 Factoring means give liquid assets - receivables - of a
compasny to a financial institution for maintaining on
proper way of collection and maintain good outstanding
position.
and Leasing to give a fixed assets to a leasee company for
using it for a pre decided period.

8.  Sweden Factoring Turnover (millions Euro) : 8,050.40
Factoring as a Percentage of GDP (Fact GDP) 3.21% -3-
Yr Growth Rate of
 Factoring Turnover growth rate over a period of 3
years( 2010 to 2013) 11.05%

9.  According to different factoring Association in
Sweden, factoring adds to almost 3.57% of financial
market. One of the highest among nordic countries.
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1990 1995 2000 2005 2010
Volume of Factoring Market of Sweden

10.  The factoring ratio (referring to the ratio between the
total of outstanding balances bought by the factoring
companies associated in the German Factoring
Association and the GDP) dropped just below the
magical 6%-hurdle (5.95%).
 Despite this slight decrease, the turnover of the
factoring companies associated in the Swedish
Factoring Association once more corresponds to
approximately 6% of the total Swedish GDP in 2012.
This figure clearly illustrates the relevance which
factoring by now holds in the German economy.

11.  Companies do not prefer using factoring services when they do
not run any debt collection operations of their own.
 Companies do not prefer using factoring services when they
wish to finance their expansion and growth on their own.
 Companies do not prefer using factoring services when they
want to protect themselves against losses on receivables.
 Companies do not prefer using factoring services when they
think that there is no need of such financial source and they can
rain money from other resources.
 Many people are still apprehensive about the loss or ay other
suffering that can be caused to them.
 Some factoring companies create a strong financial base but do
not get the potential customers.

12.  In the aftermath of the recession, the unstable
economic situation typically bears the risks of liquidity
deficits and increasing insolvencies among financially
stricken companies.
 Hence, factoring companies cannot yet relax their risk
management and monitoring efforts. Some factoring
companies without a strong capital base may also
continue to face refinancing problems and suffer
declining margins. New factoring business may still
struggle to make up for the eroded turnovers of their
existing client portfolios.