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Factoring is an arrangement where a company sells its accounts receivables or invoices to a third party, known as the factor, at a discount. The factor then takes on the credit and collection risks associated with those accounts. Key aspects of factoring include:
1) A company assigns its debts owed by customers to the factor in exchange for upfront cash from the factor, usually 80% of the invoice amount.
2) The factor then takes over managing the sales ledger, investigating credit, and collecting payment from customers.
3) Factoring provides financing and working capital to companies by converting outstanding invoices into immediate cash flow.
Исходное описание:
This depicts the factoring arrangement and it's difference between bills of exchange.
Factoring is an arrangement where a company sells its accounts receivables or invoices to a third party, known as the factor, at a discount. The factor then takes on the credit and collection risks associated with those accounts. Key aspects of factoring include:
1) A company assigns its debts owed by customers to the factor in exchange for upfront cash from the factor, usually 80% of the invoice amount.
2) The factor then takes over managing the sales ledger, investigating credit, and collecting payment from customers.
3) Factoring provides financing and working capital to companies by converting outstanding invoices into immediate cash flow.
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Attribution Non-Commercial (BY-NC)
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Factoring is an arrangement where a company sells its accounts receivables or invoices to a third party, known as the factor, at a discount. The factor then takes on the credit and collection risks associated with those accounts. Key aspects of factoring include:
1) A company assigns its debts owed by customers to the factor in exchange for upfront cash from the factor, usually 80% of the invoice amount.
2) The factor then takes over managing the sales ledger, investigating credit, and collecting payment from customers.
3) Factoring provides financing and working capital to companies by converting outstanding invoices into immediate cash flow.
Авторское право:
Attribution Non-Commercial (BY-NC)
Доступные форматы
Скачайте в формате PDF, TXT или читайте онлайн в Scribd
NICMAR, Hyderabad. Backdrop o Working capital gets tied up in the form of trade debts. o The average collection period has been on increase. o Delays in collection results in liquidity problems and consequently to delay in production and supplies. o Increases the cost of capital, reduces profit and competitiveness of a company. 9/9/2009 Dr Sarbesh Mishra Factor - Meaning o Factor means “to make or to do” in other words ‘to get things done’.
o Dictionary meaning of Factor means ‘an
agent’, engaged in financing the operations of certain companies, through the purchase of account receivables.
9/9/2009 Dr Sarbesh Mishra
Definition o Factoring is an continuous arrangement between financial institution, (namely the factor) and a company (namely client) which sells goods and services to trade customers on credit. o Factoring is a service of financial nature involving the conversion of credit bills into cash.
9/9/2009 Dr Sarbesh Mishra
Modus Operandi oA factoring arrangement (invoice purchasing arrangement) between client and the factor, which is the financing organisation. o Selling of goods by client results in preparation of invoices o Goods are sent to the buyers without raising the B/E but by invoice.
9/9/2009 Dr Sarbesh Mishra
Contd…. o The trade debt due by the purchaser to the client is assigned to the factor. o Purchaser is required to pay to the factor. o Client hands over the invoices to the factor under cover of a schedule of offer along with copies of invoices. o Factor makes an immediate up to 80% of the assigned invoices and balance to be paid on realisation of the debt. 9/9/2009 Dr Sarbesh Mishra Terms and Conditions o Assignment of debt in favor of factor o Selling limits for the client o Conditions within which the factor will have recourse to the client in case of non- payment by trade customer o Details regarding the payment to the factor for his services o Limit of any overdraft facility and the rate of interest to be charged by the factor 9/9/2009 Dr Sarbesh Mishra Functions o Purchase and collection of debts o Sales ledger management o Credit investigation and undertaking of credit risk o Provision of finance against debts o Rendering consultancy services
9/9/2009 Dr Sarbesh Mishra
Types of Factoring o Non Recourse Factoring o Recourse Factoring o Maturity Factoring o Bulk Factoring o Invoice Factoring o Agency Factoring o International Factoring
9/9/2009 Dr Sarbesh Mishra
Factoring Vs. Discounting I. Covers entire trade debts I. Only those trade debts backed by account II. This is outright purchase of receivable. trade debts II. Kind of advance against the III. Non-recourse factoring is bills also available III. Discounting is always with IV. It includes several recourse specialized operations IV. It is only for provision of V. No such registration is finance required V. Discounting requires registration charges with RoC. 9/9/2009 Dr Sarbesh Mishra