Factoring is a financial deal in which the owner of an industry sells his/her own account receivable to a third party who is referred to as a factor at a discount.In advance factoring, the industry owner sells his/her receivables in the form of invoice to the third party, who then makes an advance of seventy to eighty five percent of the buying price of the amount receivable. The third party collects the whole amount from the client in time and pays the remaining amount of money due to the industry owner after subtracting his/her commission as well as other charges. In maturity factoring, the third party makes no instant advance on the procured accounts; but ensures that the client pays the charged amount within the specified time. But, if the client fails to pay within the specified time for example 30 days, the third party makes payment to the customer and then he/she proceeds to collect the money from the customer.The third parties who are involved directly include the individual who is selling the receivables, the factor and the debtor. The receivable is basically a financial asset that is associated with the liability of the debtor to pay money due to the seller. The seller then will sell one or even more of his/her receivables to the third party at a discount price.The trade of the receivables basically transfers control of the receivables to the third party, signifying the factor acquires all of the rights that are connected with the receivables. Consequently, the factor acquires the right to get the payments collected from the amount of invoice paid by the debtor and in the non-recourse factoring, the loss must be beard if the account debtor doesn’t pay the amount of invoice due solely to his/her or its inability to pay financially. Generally, the debtor is informed of the transaction of the receivable, and then the debtor is billed by the factor and makes all available collections; though.3 Principal Parts to Advance FactoringThere are 3 principal parts to advance factoring transaction; the advance, a proportion of the invoice face price that the seller is paid at the time of transaction, the reserve, the rest of the buying price held until when the payment by the debtor is made and the discount fee, the price associated with the deal which is subtracted from the reserve, alongside other expenditures, upon the collection, even before the reserve is paid to the client of the factor


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s