After studying this chapter you will be able to understand: Financial services, factoring, mechanism of factoring, types of factoring, advance and maturity factoring, functions of a factor, venture capital,. | Revise Lecture 15 Financial Services Factoring Features of Factoring Financial services Features of Factoring: 3. A factor performs at least two of the following functions; Providing finance Maintaining accounts ledgers Collecting receivables Protecting risk of default in payments Financial services Features of Factoring: 4. Factor acts as another financial intermediary between the buyer and the seller. 5. Unlike a bank, a factor specializes in handling and collecting receivables in an efficient manner. The factor receives the payments directly since the invoices are assigned in favour of it. Mechanism of Factoring Financial services Mechanism of Factoring: The mechanism of factoring is summed up as the following; An agreement is entered into between the selling firm and the buying firm. The sales documents should contain the instructions to make payments directly to the factor who is assigned the job of collection of receivables. Financial services Mechanism of Factoring: 3. When the | Revise Lecture 15 Financial Services Factoring Features of Factoring Financial services Features of Factoring: 3. A factor performs at least two of the following functions; Providing finance Maintaining accounts ledgers Collecting receivables Protecting risk of default in payments Financial services Features of Factoring: 4. Factor acts as another financial intermediary between the buyer and the seller. 5. Unlike a bank, a factor specializes in handling and collecting receivables in an efficient manner. The factor receives the payments directly since the invoices are assigned in favour of it. Mechanism of Factoring Financial services Mechanism of Factoring: The mechanism of factoring is summed up as the following; An agreement is entered into between the selling firm and the buying firm. The sales documents should contain the instructions to make payments directly to the factor who is assigned the job of collection of receivables. Financial services Mechanism of Factoring: 3. When the payment is received by the factor, the account of the firm is credited by the factor deducting its fee, charges, interest etc as agreed upon. 4. The factor may provide advance finance to the selling firm if the conditions of the agreement so require. Types of Factoring Financial services Types of Factoring: However, the following are some of the important types of factoring arrangements; Recourse and non-recourse factoring Advance and maturity factoring Conventional or full factoring Domestic and export factoring Limited factoring Financial services Types of Factoring: 6. Selected seller based factoring 7. Selected buyer based factoring 8. Disclosed and undisclosed factoring Financial services Types of Factoring: Recourse & Non- recourse In a recourse factoring arrangement, the factor has recourse to the client (selling firm) if the receivables purchased turn out to be bad. Let the risk of bad debt is to be borne by the client and the factor does not assume credit risks associated .
