Category Archives: WORKING CAPITAL FINANCING

Cost Associated with In house Management (i) cash discount, (ii) cost of funds invested in receivables, (iii) bad debts, (iv) lost contribution on foregone sales and (v) avoidable cost, of sales ledger administration and credit monitoring. Costs Associated with Recourse and Non recourse Factoring (i) factoring commission, (ii) discount charge and (iii) cost of long term funds invested in receivables. Benefits As

Reduction of Cost and Expenses Since the client need not have a special administrative set up to look after credit control. He can have the benefit of reduced by way of manpower, time and efforts. With the steady and reliable cash flow by factor till clients have many opportunities to costs and expenses taken suppliers prompt payment and quantity discounts, ordering for materials at the right time and at the rig

Higher Credit Standing There are several reasons why factoring should improve a client’s standing. With cash flow accelerated by factoring, the client is able to meet his liabilities promptly as and when they arise. The factor’s acceptance of the client’s receivables itself speaks highly of the quality of the receivables. In the case of non recourse factoring the factor’s assumption of cr

TABLE Balance Sheet: Post Factoring Scenario Advantages and Evaluation The impact of factoring on the balance sheet as revealed by Tables is three fold. Off balance Sheet Financing As the client’s debts are purchased by the factor, the finance provided by him is off the balance sheet and appears in the balance sheet only is a contingent liability in the case of recourse factoring. In case of non recourse fa

Advantages and Evaluation Advantages 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. TABLE Balance Sheet: Pre Factoring Scenario Advantages and Evaluation On the basis of

Provision of Collection Facility The factor undertakes to coiled the receivables on behalf of the client relieving him of the problems involved in collection, and enables him to concentrate on other important functional areas of the business is also enables the client to reduce the cost of collection hy way of savings in manpower, time and efforts. The use of trained manpower with sophisticated infrastructural

Functions of a Factor Depending on the type form of factoring, the main functions of a factor, in generate terms can be classified into five categories: • Financing facility trade debts; • Maintenance administration of sales ledger; • Collection facility of accounts receivable; • Assumption of credit risk credit control and credit restriction; and • Provision of advisory services. Financing Trade Debts T

Definition and Mechanism Definition Factoring can broadly be defined as an agreement in which receivable arising out of which the title of the goods services represented by the said receivables passes on to the factor. Henceforth. the factor becomes responsible for all credit control, sales accounting and debt collection from the buyer(s). In a full service factoring concept (without recourse facility), if any

FACTORING Factoring provides resources to financing receivables as well as facilitates the collection of receivables. Although such services constitute a crucial segment of the financial services scenario in the developed countries, they appeared in the Indian financial scene only in the early nineties as a result of RBI initiatives. There are two bank sponsored organisations which provide such services: (i) SB

Framework of Indian CP Market The CPs emerged as sources of short term financing in the early nineties They are regulated by the RBI. The main elements of the present framework are given below. • CPs can be issued for periods ranging between 15 days and one year. Renewal of CPs is treated a, fresh issue. • The minimum size of an issue is Rs 25 lakh and the minimum unit of subscription is Rs 5 lakh. • The ma