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FACTORING
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FEATURES OF FACTORING Factoring is a mode of financing as well as a
financial service provided ! t"e specialistcompanies called factors
Factoring is a contract#al service arising o#t of t"e
agreement etween t"e #siness firm $clients% and
t"e factors Factoring is a contin#o#s arrangement etween t"e
factor and t"e client firms& eca#se t"e invoices of
t"e client firm are contin#o#sl! factored in'
Factoring enales t"e conversion of o#tstanding
receivales into cas" flows
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T()ES OF FACTORING Reco#rse factoring'
Non*reco#rse factoring'
Advance factoring
+an, participation factoring -at#rit! factoring'
Notified and #ndisclosed factoring
F#ll factoring
Invoice factoring'
E.port factoring
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RECOURSE FACTORING
T"is is a t!pe of factoring in w"ic"
receivales are sold to t"e factor wit" t"e
#nderstanding t"at all credit ris, wo#lde t"e ond ! t"e firm'
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NON*RECOURSE FACTORING
T"is a t!pe of factoring process in w"ic"
receivales are sold to t"e factor wit" t"e
#nderstanding t"at all credit ris, wo#ld eond ! t"e factors'
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-ATURIT( FACTORING
In t"is t!pe of factoring & factor does not
ma,e an! advance pa!ment to t"e client'
T"e amo#nt will paid ! t"e factor ont"e g#aranteed pa!ment date or at t"e
time of collection from detors'
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AD/ANCE FACTORING
T"e factor pa!s a pre*specified portion&
ranging from 01 2 34 5 of t"e factored
receivales in advance& t"e alance eingpaid #pon collection on t"e g#aranteed
pa!ment date'
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+AN6 )ARTICI)ATION
FACTORING Under t"is& a an, provides an advance to
t"e client to finance a part& sa! 145 of t"e
factor reserve& i'e' t"e factored det lessadvance given ! t"e factor'
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-at#ring factoring
Also ,nown as collection factoring' Under
t"is& t"e factor does not ma,e a pre pa!ment
to t"e client' T"e pa!ment is made eit"er ont"e g#aranteed pa!ment date or on t"e date
of collection'
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NOTIFIED AND UNDISC7OSED FACTORING8
In case of notified factoring& t"e c#stomer isinformed ao#t t"e assignment of t"e det to t"e
factoring agent and is also as,ed to pa! t"e d#es to
t"e factor instead of to t"e firm'
On t"e ot"er "and& in t"e #ndisclosed factoring&t"e factoring arrangement is not disclosed to t"e
c#stomer #t t"e c#stomer is re9#ired to ma,e t"e
pa!ment to t"e c"anged address' T"is is also
,nown as non*notified factoring'
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FU77 FACTORING
Comines t"e feat#res of almost all t"e
factoring services'
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IN/OICE FACTORING
It is simpl! a ill disco#nting process'
Invoice disco#nting is a form of s"ort*term orrowing
often #sed to improve a compan!:s wor,ing capital
and cas" flow position'Invoice disco#nting allows a #siness to draw mone!
against its sales invoices efore t"e c#stomer "as
act#all! paid' To do t"is& t"e #siness orrows a
percentage of t"e val#e of its sales ledger from afinance compan!& effectivel! #sing t"e #npaid sales
invoices as collateral for t"e orrowing'
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E;)ORT FACTORING
Also ,nown as international factoring'
Deals wit" e.port sales and provide
financial services& collection service&advisor service etc
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F#nctions of a factor
-aintain acco#nts
)rovision of collection facilit!
Financing
Credit protection
Advisor! services'
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-ec"anism of factoring
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ADVANTAGES OF FACTORING
No time wasted on compre"ensive loan applications
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Disadvantages
Over*reliance on a factoring compan! can res#lt in
e.cessive trading and mismanagement'
Over*reliance on a factoring compan! can also res#lt in
loss of direct c#stomer relations'
Some #!ers do not li,e parties ot"er t"an t"e seller to e
involved'
Factoring is s"ort*term financing and cannot meet all
#siness needs'
Factoring occ#rs onl! w"en t"e factor is 9#ite s#re of t"e
client:s solvenc!'
Factoring companies prefer c#stomers wit" larger
#sinesses'
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F"#FA$$%&
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"ttp?@@www'indiafactoring'in@factoring'asp.
"ttp?@@www'indiafactoring'in@forfaiting'asp.
http://www.indiafactoring.in/factoring.aspxhttp://www.indiafactoring.in/forfaiting.aspxhttp://www.indiafactoring.in/forfaiting.aspxhttp://www.indiafactoring.in/factoring.aspx8/9/2019 Factoring n Forfaiting
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In trade finance& forfaitingis t"e financial
transaction involving t"e p#rc"ase
of receivales from e.porters ! a forfaiter' T"eforfaiter ta,es on all t"e ris,s associated wit" t"e
receivales #t earns a margin T"e forfaiter ma!
also e imm#ni>ed from certain ris,s if t"e
transaction involves pa!ment ! negotialeinstr#ment' T"e forfaiting is a transaction
involving t"e sale of one of t"e firm:s
transactions' Factoring is also a financial
transaction involving t"e p#rc"ase of financialassets& #t factoring involves t"e saleof an!
portion of a firm:s receivales'
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T"e p#rc"asing of an e.porter:s receivales
$t"e amo#nt importers owe t"e e.porter% at
a disco#nt ! pa!ing cas"' T"e forfaiter& t"ep#rc"aser of t"e receivales& ecomes t"e
entit! to w"om t"e importer is oliged to
pa! its det'
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E.porter #nder Forfeiting s#rrenders "isrig"t for claiming pa!ment for servicesrendered or goods s#pplied to Importer infavor of Forfeiter'
+an, $Forfeiter% ass#mes defa#lt ris,possessed ! t"e Importer'
Credit Sale gets converted as Cas" Sale'Forfeiting is arrangement wit"o#t reco#rse
to t"e E.porter $seller%
Operated on fi.ed rate asis $disco#nt%Finance availale #p to 445 of val#e
$#nli,e in Factoring%
Introd#ced in t"e co#ntr! in 33B'24
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E.porter is freed from credit administration'
)rovides long term credit #nli,e ot"er forms ofan, credit'
Saves on cost as ECGC Cover is eliminated'
Simple Doc#mentation as finance is availale
against ills'Forfait financer is responsile for eac" of t"e
E.porters trade transactions'
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'"** $%+"+- $%
F"#FA$$%&Commitment Fee?* )a!ale to Forfaiter !
E.porter in consideration of forfeiting services'
Disco#nt Fee?* Disco#nt rate ased on 7I+OR fort"e period concerned'
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'"/A#A$+ A%A0*$*
FACTORING FORFAITING
' Scr#tin! Service of SaleTransaction
Individ#al SaleTransaction
B' E.tent of
Finance
Upto 4*B45 Upto 445
' Reco#rse it" or it"o#tReco#rse
it"o#t Reco#rse
' Sales Administration Done Not Done
1' Term S"ort Term -edi#m Term
H' C"arge Creation Assignment Assignment
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-#A12A'3*
NON A/AI7A+I7IT( FOR S