DETAILS ABOUT FACTORING - ADVANTAGES & FUNCTIONS
Essential for All Upcoming Bank Exams
Introduction: The arrangement in which short-term domestic receivables on the sale of goods or services are sold to a company (known as FACTOR), is called, factoring which was introduced during 1991 on the Report of Kalyanasundrama Committee.
Functions:
The FACTOR performs the functions such as –
If non-payment loss is borne by the factor it is called without recourse factoring. If risk can be transferred back to the seller, it is called with recourse factoring.
The FACTOR performs the functions such as –
- Submitting sales account to the creditors;
- Purchase of Receivables;
- Collection of debt on due dates;
- Maintaining the sales account to the creditors;
- After collection, to return the reserve money to the seller and provide consultancy services to the customer.
Advantages of Factoring:
- Dealers also get rid of the receivables collection.
- Sales are virtually in cash sales.
- Its functional capital management achieves efficiency, which reduces its costs and improves the chances of good profit.
- Money available with the lenders is available for business.
- FACTOR recovers the amount from a buyer on the due date.
- Seller discounts these receivables with a FACTOR by assigning the receivables.
- Seller sells goods on a short-term credit basis.
- FACTOR purchases the receivable on with or without recourse basis.
- Buyer accepts the bills raised by the seller.
If non-payment loss is borne by the factor it is called without recourse factoring. If risk can be transferred back to the seller, it is called with recourse factoring.
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