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Lecture Retail and merchant banking – Lecture 13

The receivables constitute a significant portion of current assets of a firm. But, for investment in receivables, a firm has to incur certain costs such as costs of financing the receivables and costs of collection from the receivables. Further there is a risk of bad debts also. | Revise Lecture 13 Financial Services Factoring Financial services Factoring: The receivables constitute a significant portion of current assets of a firm. But, for investment in receivables, a firm has to incur certain costs such as costs of financing the receivables and costs of collection from the receivables. Further there is a risk of bad debts also. Financial services Factoring: It is, therefore, very essential to have a proper control and management of receivables. In fact, maintaining receivables poses two types of problems; The problem of raising funds to finance the receivables The problem relating to collection, delays and defaults of the receivables. Financial services Factoring: A small firm may handle the problem of receivables management of its own, but it may not be possible for a large firm to do so efficiently as it may be exposed to the risk of more and more bad debts. In such a case, a firm may avail the services of specialied institution engaged in receivables . | Revise Lecture 13 Financial Services Factoring Financial services Factoring: The receivables constitute a significant portion of current assets of a firm. But, for investment in receivables, a firm has to incur certain costs such as costs of financing the receivables and costs of collection from the receivables. Further there is a risk of bad debts also. Financial services Factoring: It is, therefore, very essential to have a proper control and management of receivables. In fact, maintaining receivables poses two types of problems; The problem of raising funds to finance the receivables The problem relating to collection, delays and defaults of the receivables. Financial services Factoring: A small firm may handle the problem of receivables management of its own, but it may not be possible for a large firm to do so efficiently as it may be exposed to the risk of more and more bad debts. In such a case, a firm may avail the services of specialied institution engaged in receivables management, called factoring firms. Financial services Factoring: Factoring may broadly be defined as the relationship created by an agreement between the seller of goods / services and a financial institution, called the factor. Factoring may also be defined as a continuous relationship between a financial institution ( the factor) and a business concern selling goods / service (the client) to a trade customer on an open account basis whereby the factor purchases the client’s book debts (account recieiables) with or without recourse. Financial services Factoring: The term factoring has been defined in various countries in different ways due to non-availability of any uniform codified law. Factoring means an arrangement between a factor and his client which includes at least two of the following services to be provided by the factor; Financial services Factoring: Finance for the supplier including loans and advance payments. Maintenance of accounts, ledgers relating to receivables. .