Factoring and Receivables Management

Factoring and Receivables Management(Page 5.7)ReceivablesAmounts owned to the business firm as a result of sale of goods or services.Also known as : 1. Accounts receivables2. Trade receivables3. Customer Receivables4. Book DebtsReceivables ManagementThe process of making decisions relating to investment in debtors while considering the cost, risk and returns.FactorA factor is a financial institution which offers services relating to management and financing of debts.FactoringA tool of receivables management employed to release the funds tied up in credit extended to customers and to solve the problem relating to collection, delays and defaults of the receivables.Mechanism of FactoringFunctions of a FactorDiscounting of BillsAdministration of Credit SalesMaintenance of Sales LedgerCollection of ReceivablesProtection from Bad DebtsRendering Advisory ServicesBenefits of FactoringSource of Short term FinanceBetter management of receivablesReduces the risk of bad debts and burden of credit managementSave cost and space for collection departmentAdvisory services are receivedTypes of Factoring (Agreements)Recourse Factoring:The Client Firm should bear the loss due to bad debts or non paymentNon Recourse Factoring:The Factor Firm should bear the loss due to bad debts or non payment.Advance Factoring:An advance amount (a percentage of total receivables) is paid to Client Firm. Balance paid on payment or the guaranteed date.Maturity Factoring:Payment is made to the client only on collection of receivables or guaranteed or maturity date. No Advance payment is made.

Conventional or Full Factoring (Old Line Factoring):The Factor Firm performs almost all the service of factoring.Domestic Factoring (3 Parties are involved):

Export Factoring (4 Parties are involved): ForfaitingForfaiting Firm provides 100% finance in advance against receivables unlike Factor Firms providing only certain percentage of receivables.Top Factoring Companies in India

Canbank Factors Ltd.Registered Office in BangaloreA subsidiary of Canara Bank.SBI Global Factors Ltd.Regd. Office in MumbaiA subsidiary of State Bank of India.India Factoring and Finance Solutions Pvt Ltd.Regd Office in Bandra Kurla Complex, Mumbai.Top Factoring Companies in the World