Submitted By: Sukhjeet kaur 1174302 MBA 4TH

Meaning
The word Factor has been derived from the Latin word Facere which means to make or to do or to get things done

Factoring may broadly be defined as the relationship, created by an agreement, between the seller of goods/services and a financial institution called the factor, whereby the latter purchases the receivables of the former and also controls and administers the receivables of the former.

Who is factor?
Factor is a financial institution that specializes in purchasing receivables from business firms.

Factor assumes the risk of collection of receivables and on the event of non payment by debtors/customers bears the risk of bad debt and losses

Definition
According to Peter M Biscose:Factoring may also be defined as a continuous relationship between financial institution (the factor) and a business concern selling goods and/or providing service (the client) to a trade customer on an open account basis, whereby the factor purchases the clients book debts (account receivables) with or without recourse to the client thereby controlling the credit extended to the customer and also undertaking to administer the sales ledgers relevant to the transaction.

Concept
Factoring is a specialized activity whereby a firm converts its receivable into cash by selling them to a factoring organization.
FACTOR

CLIENT

CUSTOMER

 Client :- Client is the person who wants to sell the commodity to the customer. Customer :- Customer is the person who wants that commodity but he do not have sufficient money. Factor :- Factor enters into agreement with the client for rendering factor services to it. The factor receives payment from the buyer on due dates and remits the money to seller after usual deductions.

IMPORTANCE OF FACTORING
BENEFITS TO THE CLIENT BENEFITS TO THE CUSTOMER BENEFITS TO BANKS

1. BENEFITS TO THE CLIENT

Client can offer competitive credit terms to his buyers. Client can expand his business by exploring new market. Cash can realized from credit sales can be used to accelerate the production cycle. Clients credit sales are immediately converted into ready cash.

2. BENEFITS TO CUSTOMERS(BUYERS)
Factoring facilitates the credit purchases of the customers as they get adequate credit period. Customers save on bank charges and expenses. Customers has not to furnish any documents.

3. BENEFITS TO BANKS
Factoring improves liquidity of clients and improves the quality of advances of banks. Factoring is not a threat to banking .

Advantages of Factoring:
Increases working capital Avoid additional liabilities Improves credit monitoring Reduces administrative cost Reduce supplier credit costs Protection against bad-debts in case of nonrecourse Better management of the organization

Factoring in India
SBI Factors and Commercial Services (SBI FACS) Ltd Can bank Factors Ltd Foremost Factors Ltd (FFL) Global Trade Finance Ltd (GTF) The Hong Kong and Shanghai Bank Corporation Limited (HSBC) Export Credit Guarantee Corporation of India Ltd. (ECGC) India Factoring and Finance Solutions Pvt Ltd (India Factoring)