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Factoring

Factoring is a financial arrangement where a firm sells its trade debts to a financial institution (factor) at discounted prices in exchange for immediate advances. This technique serves as an alternative for financing and managing accounts receivables, with specific terms outlined in a factoring agreement. The factor typically pays the client a significant portion of the receivables upfront, with the remainder paid after the customer fulfills their obligation.

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10 views1 page

Factoring

Factoring is a financial arrangement where a firm sells its trade debts to a financial institution (factor) at discounted prices in exchange for immediate advances. This technique serves as an alternative for financing and managing accounts receivables, with specific terms outlined in a factoring agreement. The factor typically pays the client a significant portion of the receivables upfront, with the remainder paid after the customer fulfills their obligation.

Uploaded by

username54783929
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Factoring

 Factoring implies a financial arrangement between the factor and


client, in which the firm (client) gets advances in return for
receivables, from a financial institution (factor).
 It is a financing technique, in which there is an outright selling of
trade debts by a firm to a third party, i.e. factor, at discounted prices.
 It is a financial alternative, in financing and management of account
receivables.
 It states the terms and conditions of the sale in the factoring
agreement.
 In final terms, it is a relationship between the factor and the client,
in which the factor purchases the client’s account receivables and
pay up to 80% (sometimes 90%) of the sum immediately, at the time
of entering into the agreement. The factor pays the balance sum, i.e.
20% or 10% of the amount which includes finance cost and
operating cost, to the client when the customer pays the obligation.
Dr. Mayank Malviya

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