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Factoring

Prepare By Komal B. Gohel (MBA-II, Sem-III)

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FOCTORING
Definition: Factoring is defined as a continuing legal relationship between a financial institution (the factor) and a business concern (the client), selling goods or providing services to trade customers (the customers) on open account basis whereby the Factor purchases the clients book debts (accounts receivables) either with or without recourse to the client and in relation thereto controls the credit extended to customers and administers the sales ledgers.

It

is the outright purchase of credit approved accounts receivables with the factor assuming bad debt losses. provides sales accounting service, use of finance and protection against bad debts. is a process of invoice discounting by which a capital market agency purchases all trade debts and offers resources against them.

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Factoring

Factoring

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PARTIES INVOLVED IN FACTORING


Se l er l

Client

custo mer
collectio n

Buy er

facto r

b in u voi ys ces

Fin an cer

Characteristics of Factoring Services


Credit Credit

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Administration Collection and Protection Assistance Services

Financial Other

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Types of Factoring
Full Full

Service Non-recourse Factoring (old-line Factoring) Service Recourse Factoring Factoring and Non-notified Factoring and Maturity Factoring Factoring

Bulk/Agency Notified Export

and Import Factoring Discounting

Advance Invoice

International

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Costs of Factoring
The

Fee

Factoring Commission Or Service

The

Interest On Advance Granted By The Factor To The Firm

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Benefits of Factoring
The

client will be relieved of the work relating to sales ledger administration and debt collection client can therefore concentrate more on planning production and sales. charges paid to a factor which will be marginally high at 1 to 1.5% than the bank charges will be more than compensated by reductions in administrative expenditure. will also improve the current ratio of the client and consequently his

The

The

This

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Factoring Services In India


a)

Kalyana Sundaram Committee recommended introduction of factoring in 1989. Banking Regulation Act, 1949, was amended in 1991 for Banks setting up factoring services. SBI/ Canara Bank have set up their Factoring Subsidiaries:SBI Factors Ltd., (April, 1991) ( an asset base of Rs 1908.00 corers as on March 31, 2008, highest in India) Canara Bank Factors Ltd., (August, 1991). RBI has permitted Banks to undertake factoring services through subsidiaries.

b)

c)

d)

e) f)

Management Issues In Factoring Service


Type Price To

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Of Services To Be Offered To Be Charged

Whom To Be Offered

Pricing Promotion

Marketing Of Factoring Services

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The concept of factoring in India is quite new. traders and manufacturers, particularly belonging to small scale and medium sectors are not fully aware of the concept of factoring. is important to educate them about the types of services provided by these factoring agencies. marketing efforts are necessary to make the clients aware of the factoring services offered in India by institutions such as ECGC.

Many

It

More

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Thank you

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