1. Factoring |
A collection and financial service where by receivables are purchased by the factor and credit sales are converted into cash sales. |
2. Non-Recourse Factoring |
It is the most comprehensive type of factoring arrangement offering all types of services namely:
- Finance
- Sales Ledger Administration
- Collection
- Debt Protection
- Advisory Services
It gives protection against bad debts to the client. In other words, in case the customer fails to pay, the factor will have ‘no recourse’ to the client and will have to absorb the bad debts himself. |
3. Recourse Factoring |
In this type of factoring arrangement, the factor provides all types of facilities except debt protection. In other words, the client is responsible for any bad debts incurred. |
4. Invoice Discounting |
In this type of factoring arrangement, only finance is provided and no other service is offered. |
5. Undisclosed Factoring Or Open Account Receivables |
The factor does not follow up or collect payment from the customer. The customer may not be aware of the factoring arrangement and pays the client directly. The factor receives payment of invoices through the client. |
6. Domestic Factoring |
The factoring arrangement where all the three- the factor, the seller and the buyer are in the same country, subject to the same laws. |
7. International Factoring |
The factoring arrangement, where the seller and the buyer are in two different countries involving co-operation between two factoring companies, one in the seller’s country (Export Factor) and the other in the buyer’s country (Import Factor) |
8. Export Factor (Ef) |
It is the factoring company in the seller’s country who purchases (factors) the export documents. |
9. Import Factor (If) |
It is the factoring company in the buyer’s country who handles collection and credit risks. |
10. Client (Seller) |
A business institution supplying goods/services on credit and availing of factoring arrangements. He is also known as supplier. |
11. Customer (Buyer) |
A business organization to whom the goods/services are sold/supplied on credit. He is also known as Debtor. |
12. Open Acount Sales |
An arrangement in which goods/services are sold /supplied by the client to the customer on credit without raising any bill of exchange or promissory note. |
13. Retention |
Margin (20%-30%) on invoice value maintained by the factor. |
14. Approved Debts |
Debts, which are approved by the factor for making prepayments. |
15. Unapproved Debts |
Debts against which prepayments are not made. |
16. Account Receivable (Ar) |
An amount of indebtedness represented by an invoice not yet paid by the buyer. |
17. Prepayment |
The advance payment made by the factor to the client upto a certain percent of the eligible debts. |
18. Edifactoring |
EDIFACToring is a worldwide system for dealing with all factoring documentation required for the paperless trading environment of Electronic Data Interchange. |
19. Notice Of Assignment |
A written notice to the buyer that the account receivable has been assigned to, and is payable to the factor/assignee. This notice appears on the factored invoices also. |
20. Payment Terms |
The specific terms related to the payment of an invoice that are stated on the invoice. |
21. Payment Under guarantee |
The payment of an approved account receivable by the Import Factor to the Export Factor made 90 days after the due date of the invoice concerned if no dispute is raised by the buyer. |
22. Finance Charge |
It represents the interest on funds made available to the client by way of prepayment against purchase of approved invoices. |
23. Service Charge |
The charge levied for rendering non-funding services such as collection, sales ledger maintenance and other advisory services. |
24. Letter Of Notification |
The letter informing the debtor (buyer) that the AR has been assigned to the Factor. |
25. Letter Of Disclaimer |
This is the letter prepared by the bankers and sent to the factor releasing the hypothecation charge created by the borrower over the receivables on specified customers so as to avoid double finance against the receivables factored. |
26. Trade Dispute |
Dispute arising over the quality, price or delivery of services. |
