tqm factoring

7/29/2019 TQM Factoring

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Factoring is a financial transaction whereby a business sells itsaccounts receivable (i.e., invoices) to a

third party (called a factor) at adiscount.

In "advance" factoring, the factor provides financing to the seller of the accounts in the form of a cash

"advance," often 70-85% of the purchase price of the accounts, with the balance of the purchase price

being paid, net of the factor's discount fee (commission) and other charges, upon collection from the

account client

In "maturity" factoring, the factor makes no advance on the purchased accounts; rather, the purchase

price is paid on or about the average maturity date of the accounts being purchased in the batch.

Different types of Factoring

1. Disclosed and Undisclosed

2. Recourse and Non recourse

A single factoring company may not offer all these services.

Disclosed

In disclosed factoring client's customers are notified of the factoring agreement.

Disclosed type can either be recourse or non recourse.

Undisclosed

In undisclosed factoring, client's customers are not notified of the factoringarrangement. Sales ledger administration and collection of debts are undertaken by the

client himself. Client has to pay the amount to the factor irrespective of whether

customer has paid or not. But in disclosed type factor may or may not be responsible

for the collection of debts depending on whether it is recourse or non recourse.

Recourse factoring

In recourse factoring, client undertakes to collect the debts from the customer. If the

customer don't pay the amount on maturity, factor will recover the amount from the

client. This is the most common type of factoring. Recourse factoring is offered at alower interest rate since the risk by the factor is low. Balance amount is paid to client

when the customer pays the factor.

Non recourse factoring

In non recourse factoring, factor undertakes to collect the debts from the customer.

Balance amount is paid to client at the end of the credit period or when the customer
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pays the factor whichever comes first. The advantage of non recourse factoring is that

continuous factoring will eliminate the need for credit and collection departments in

the organization.

Canbank Factors Limited:

SBI Factors and Commercial Services Pvt. Ltd:

The Hongkong and Shanghai Banking Corporation Ltd:

Factoring differs from a bank loan in several ways. The emphasis is on the value of the receivables

(essentially a financial asset), whereas a bank focuses more on the value of the borrower's total assets,

and often also considers, inunderwriting the loan, the value attributable to non-accounts collateral owned

by the borrower. Such collateral includes inventory, equipment, and real property,[1][2]That is, a bank loan

issuer looks beyond the credit-worthiness of the firm's accounts receivables and of the account debtors(obligors) thereon. Secondly, factoring is not a loan it is the purchase of afinancial

asset (the receivable). Third, a nonrecourse factor assumes the "credit risk", that a purchased account will

not collect due solely to the financial inability of account debtor to pay.

In the United States, if the factor does not assume credit risk on the purchased accounts, in most cases a

court will recharacterize the transaction as a secured loan.

It is different from forfaitingin the sense that forfaiting is a transaction-based operation involving exporters

in which the firm sells one of its transactions,[3] while factoring is a Financial Transaction that involves the

Sale of any portion of the firm's Receivables.

Factoring is a word often misused synonymously with invoice discounting, known as "Receivables

Assignment"in American Accounting ("Generally Accepted Accounting Principles"/"GAAP"propagated by

FASB)[2]- factoring is the sale of receivables, whereas invoice discounting is borrowing where the

receivable is used as collateral.

1. Factoring is easier to obtain that conventional loans since it uses accounts receivable

as its main collateral.

2. Factoring is quick to set up and can usually be implemented in a few weeks.

3. Factoring provides immediate liquidity by advancing funds against slow payingaccounts receivable/invoices.

4. Factoring provides predictable cash flow by eliminating the uncertainty of when aninvoice will be paid.
http://www.canbankfactors.com/http://www.sbifactors.com/http://www.hsbc.co.in/1/2/corporate/trade-and-factoring-serviceshttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-Finance-0http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-Finance-0http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-Finance-0http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-CPA_Finance-1http://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Secured_loanhttp://en.wikipedia.org/wiki/Forfaitinghttp://en.wikipedia.org/wiki/Forfaitinghttp://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-ReferTo-2http://en.wikipedia.org/wiki/Invoice_discountinghttp://en.wikipedia.org/wiki/Invoice_discountinghttp://en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles_(United_States)http://en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles_(United_States)http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-CPA_Finance-1http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-CPA_Finance-1http://en.wikipedia.org/wiki/Collateral_(finance)http://en.wikipedia.org/wiki/Collateral_(finance)http://www.canbankfactors.com/http://www.sbifactors.com/http://www.hsbc.co.in/1/2/corporate/trade-and-factoring-serviceshttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-Finance-0http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-CPA_Finance-1http://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Secured_loanhttp://en.wikipedia.org/wiki/Forfaitinghttp://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-ReferTo-2http://en.wikipedia.org/wiki/Invoice_discountinghttp://en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles_(United_States)http://en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles_(United_States)http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-CPA_Finance-1http://en.wikipedia.org/wiki/Collateral_(finance)


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5. Factoring provides the funds to pay vendors and employees ensuring the companycan continue operations during the bankruptcy period.

6. Increase working capital without incurring additional debt or sacrificing equity.

7. Get funding quickly and put your cash back to work in your business.

8. Obtain a much larger advance compared to traditional bank lines of credit.

9. Very little financial documentation is required to get started.

10.Predict your cash flow more accurately. Cash availability no longer relies on the uncertain timing ofcustomers' payments.

11. Spend less time dealing with Accounts Receivable. We assist you with collection calls and processyour payments on assigned accounts. You can access your company's reports and information online24/7.

12.Improve your credit rating. With the increased cash flow from Factoring, you can make timelypayments to vendors and enhance your credit rating.

13. Increased productivity. With less time spent on cash flow issues, you will be able to spend more timeon growing your business.

14.Reduce the credit risk with your customers. You can utilize our expert credit analysis on potentialclients prior to accepting orders.

15. Reduce your cost of goods. Take advantage of trade discounts from suppliers by making paymentswithin discount terms.

The purchasing of an exporter's receivables (the amount importers owe the exporter) at a

discount by paying cash. The forfaiter, the purchaser of the receivables, becomes the entity

to whom the importer is obliged to pay its debt.

By purchasing these receivables - which are usually guaranteed by the importer's bank - the

forfaiter frees the exporter from credit and from the risk of not receiving payment from the

importer who purchased the goods on credit. While giving the exporter a cash payment,

forfaiting allows the importer to buy goods for which it cannot immediately pay in full.

In trade finance, forfaiting is a financial transaction involving the purchase ofreceivables from exporters

by a forfaiter. The forfaiter takes on all the risks associated with the receivables but earns a margin.[citation

needed][1] The forfaiting is a transaction involving the sale of one of the firm's transactions.[1]Factoring is

also a financial transaction involving the purchase offinancial assets, butFactoringinvolves the sale of

any portion of a firm's receivables.[2]
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The characteristics of a forfaiting transaction are:

Credit is extended to the exporter for a period ranging between 180 days to seven years.

Minimum bill size is normally $250,000, although $500,000 is preferred.

The payment is normally receivable in any major convertible currency.

Aletter of credit or a guarantee is made by a bank, usually in the importer's country.

The contract can be for either goods or services.

At its simplest, the receivables should be evidenced by a promissory note, a bill of exchange, a deferred-

payment letter of credit, or a letter of guarantee.
http://en.wikipedia.org/wiki/Letter_of_credithttp://en.wikipedia.org/wiki/Letter_of_credithttp://en.wikipedia.org/wiki/Letter_of_credit

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