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 right place. avoidance of disruption in the production schedule, and so on.
The supplier acts an additional source of funding, which eliminates the uncertainty associated with the collection cycle. More importantly fund, from a factor is an additional source of finance for the client outside the purview of bank credit.
The distinct advantages of factoring notwithstanding it does involve costs. The evaluation framework should be on a consideration of the relative costs and benefits associated with the two alternatives to receivables management. They are: (i) in house management by the firm itself (ii) factoring service, either recourse or non recourse. The relevant costs and benefits associated with these are listed below.