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Factoring & Forfaiting

Factoring & Forfaiting

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Published by souvik.icfai
Factoring
Factoring

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Published by: souvik.icfai on Dec 06, 2009
Copyright:Attribution Non-commercial

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12/31/2012

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FACTORING&FORFAITING
 
 
 
INTRODUCTION
Leasing , HP & consumer credit are all fund based financialservices predicated upon Fixed Assets of the firm
While
factoring is predicated on receivablesCan Bank factors limited is leading player with 55 % share whileSBI Factors & commercial services limited has a market share of 40%Factoring is sale of book debts by a firm “client” to financialintermediary “factor” that he will pay for the debt as & whenthey are collected or on a guaranteed payment date but a partusually immediately to provide the liquidity to clientCollection of receivables & maintenance of sales ledger 
 
 
PRACTICAL PROBLEM 
SBI Factors advances Rs 14 lacs to ABC ltd againstagreement of providing advance payment of 80 % of receivables & for guaranteed payment after 3 months. Therate of interest is 16 % compounded quarterly & factoringcommission is 1.5 % of receivables. Both collected upfrontCompute amount actually made available to ABC ltdCalculate effective cost of funds made available to ABCAssume interest is collected in arrear & commission inadvance what would be effective cost of funds

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