Factoring has several positive features from the point of view of the firm (client of the factor). Some of these advantages are briefly discussed as follows:
Impact on the Balance Sheet
The impact of factoring on the balance sheet of the client and its implications are illustrated in Tables.
Balance Sheet: Pre Factoring Scenario
On the basis of the above configuration, the borrower is eligible for working capital limns aggregating Rs 110 lakh under the second method of lending.
Assume the borrower decides to factor his debts. The factoring transaction is as follows:
Receivables aggregating Rs 80 lakh are purchased by a factor who makes prepayment of 80 per cent, that is Rs 64 lakh. He retains Rs 16 lakh (factor reserve) which will he repaid on payment by the customer.