Professional Documents
Culture Documents
What is Factoring ?
Definition:
Functions
Provision for collection of credit sales
Administration of sales ledger
Financing Trade Debt (Credit Sales)
Credit Management and covering credit
risk involved
Financial Services, Nishant Dhruv,
Atmiya College
Types of Factoring
Recourse Factoring
Non-recourse Factoring
Advance and Maturity Factoring
Old line Factoring/Full Factoring
International Factoring
Mechanism of Factoring
1. Customer places order, client delivers
2.
3.
4.
5.
6.
charge.
Costing can be segregated in two ways
multiple finance
Attracts stamp duty
Financial Services, Nishant Dhruv,
Atmiya College
Advantages of Factoring
To the client (Company)
Conversion of credit sales into cash
Competitive credit terms to buyers
Free from tensions of monitoring sales ledger
Close interaction among working capital & other
components
Expand business
To the customer (Buyers)
Facilitates credit purchases
Save on bank charges
Less paperwork
Does not impinge on the customers rights
Financial Services, Nishant Dhruv,
Atmiya College
Factoring
services
Factoring
Expensive source
Less expensive
More paperwork
Less paperwork
Submission of original
documents required
No assignment of debts
Assignment of debts
Forfaiting
Origin of Forfaiting
The term forfait is a french word which
1960s.
In India, RBI approved forfaiting as an
Characteristics of Forfaiting
The exporter is insulated against the
possibility of default.
Trade receivables are required to be
denominated in a freely convertible
currency.
Credit period can range from 60 days to
10 years.
Forfaiting is flexible as well as tailormade.
Financial Services, Nishant Dhruv,
Atmiya College
Pricing of a Forfaiting
transaction
The pricing consist of four elements :
Interest Rate
Commitment Fees
Handling Fee
Factoring
No bank involved
The entire sales ledger is
administered for some fixed fee