Domestic Factoring:

It is a transaction in which a business sells its accounts receivables, or invoices, to a third party, at a discount, known as a “Factor”.

  • It was introduced in the country in 1989.
  • The exporter assigns his account receivables in the favor of the factor & give notice of assignment to the debtor.
  • The factor also provides you back-office support.
  • The factor undertakes collection/accounting & management of debts of their clients.
  • Factoring is sometimes called as “Accounts Receivable Financing”
  • Most factoring companies will purchase your invoices & advance you money within 24 hours.
  • At first, they will pay you 80-90% of the a/c receivable or invoice value.
  • Once they receive the payment from the buyer they will pay you the balance amount after deducting the fees.
  • The factor may either lend against the account receivables or purchase the invoice.
  • The financing doesn’t show up on your balance sheet as debt.
  • Factoring is based on the quality of your customer credit, not your own credit or business history.
  • Factoring provides a line of credit based on sales, not your company’s net worth.
  • Factoring allows you to concentrate on your core business rather than running for difference source of funds.

There are two types of factoring in practice.

  1. Factoring for Domestic sales
  2. Factoring for Export sales

1) Factoring for Domestic Sales:

  • Full Factoring
  • Recourse Factoring
  • Maturity Factoring
  • Advanced Factoring
  • Undisclosed Factoring
  • Invoice Discounting

2) Factoring for Export Sales

  • Single Factoring System
  • Direct Export Factoring
  • Direct Import Factoring