Question

Elucidate the features of factoring.

Answer 1

1. Maintenance of book – debts: A factor takes the responsibility of maintaining the accounts of debtors of a business institution.
2. Credit coverage: The factor accepts the risk burden of loss of bad debts leaving the seller to concentrate on his core business
3. Cash advances: Around eighty percent of the total amount of accounts receivables is paid, as advance cash to the client.
4. Collection service: Issuing reminders, receiving part-payments, collection of cheques from part of the factoring service.
5. Advice to clients: From the past history of debtors, the factor is able to provide advice regarding the creditworthiness of customers, perception of customers about the products of the client, etc.