DEPT- BANKING & INSURANCE (T.

Y)
TOPIC FACTORING

WELCOME

FACTORING

The term factor has its origin from the Latin word,
Faceremeaning to get things done. The dictionary
defines a factor as an agent particularly a mercantile
agent.

DEFINITION OF FACTORING
Factoring is a continuing arrangement between a financial
institutions(the factor) and business concern(the client)selling
goods or services to trade customer(the customer) where by the
factor purchases the clients accounts receivables/book debts
either with or without recourse to the clients and in relation there
to controls the credit extended to the customers and administers
the sales ledger.

CHARACTERISTICS OF
FACTORING :
Money market instruments.
Period.
Costly source of finance.
Credit insurance facility.
Ideal financial solution.

Different kinds of factoring

services
Debt administration
Credit Information
Credit Protection
Invoice Discounting or Financing

PARTIES TO THE FACTORING

CONTRACT
1.
2.
3.

Customer i.e. buyer

client i.e. seller
Factor

Process of factoring
1. Invoice

2. Notify the factor

3. Funding
4. Follow up with the customer
5. Payment received by factor from customer
6. Balance payment made immediately on

realization of client

BENEFITS OF FACTORING
TO THE SELLER :1. LIQUIDITY
2. OFF BALANCE SHEET FINANCE HENCE

LEVERAGE
3. LEDGER MANAGEMENT
4. OTHER ADD-ON BENEFITS
5. STATEMENTS

TO THE CUSTOMER OF THE SELLER

1.
2.
3.
4.
5.

ADEQUATE CREDIT PERIOD

NO DOCUMENTATION
PERIODICAL STATEMENTS
COMPANY CAN STRENGTHEN ITS LINKS
DOES NOT IMPINGE ON THEIR RIGHTS

DISADVANTAGES OF FACTORING
1. IMAGE
2. NOT SUITABLE FOR ONE TIME SALES
3. HIGHER COST

Cost Of Factoring
Factoring is more affordable.
In factoring the two basic fees paid to the

factoring company . They are:1. Service Fee

2. Interest charge on the amount advanced.

TYPES OF FACTORING
Disclosed Factoring
Undisclosed Factoring
Recourse Factoring
Non-recourse Factoring
Domestic Factoring

FUNCTIONS OF FACTORING
Instant Cash
Follow-up and Speedy Collection
Sales Ledger Administration
Credit Protection
Advisory Services

FACTORING IN INDIA

In India the idea of providing factoring services was first

thought of by the Vaghul Working Group.

On the recommendation of the committee, the Banking

Regulation Act was amended in July 1990.

In February,1994, the RBI has permitted all banks to enter

into factoring business with a view to give further impetus to

the factoring system.

In India, the factoring service was first started by the State

Bank of India called as SBI Factors & Commercial Services

Pvt. Ltd.(SBI FACTS) which was started in July 1991.

INTERNATIONAL FACTORING
international factoring works in a similar way to domestic

factoring.
different customs, currency systems , laws and languages
still creates barriers to trade in the world.
a factor can also provide exporters with 100% protection
against the importers inability to pay.
attractive to international traders.
international factoring can be seen as a favorable in all
countries.

THANK YOU