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    Factoring (financial services)

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    Finance

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    © All Rights Reserved
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    5 views16 pages

    Factoring (Financial Services)

    Uploaded by

    sureshbeliver005
    Finance

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 16
    Discounting Fac and Forfaiting a ri Chapter 15 INTRODUCTION ee In India, the financial services sector is developing a a to meet the emerging needs of the economy. Many innovatiy, tes Tae been introduced by this sector and one such area wherein it has b Schemes tee is book debt financing. Financial institutions try to extend theta assistance to a larger cross-section of the trading community ir finan debt financing, A kind of book debt financing is already prachg 8h eg the commercial banks. It is nothing but bill financing. This type of e India, done either by way of direct purchase of bills of Customers or discouny Bis Oe hen, DISCOUNTING re Generally, a trade bill arises out of a Benuine credit trade tren ANSaction, The supplier of goods draws a bill on the purchaser for the the goods sold on credit. It is drawn for a short Period of 3 t in some cases for 9 months. The buyer of goods accepts the himself liable to pay the amount on the due date. In such a case, thé-sungs of goods has to wait for the expiry of the bill to get back the Cost of the sold. It involves locking up of his working capital which is very much for the smooth running of the business or for carryin production process. It is where the commercial banks enter into asa financier, The commercial banks Provide immediate cash by discounting genuine trade bills. They deduct a certain charge as discount charges from the amount of the bill and the balance is credited to the Customer's account and thus, te customer is able to enjoy credit facilities against the discounting of bills course, this discount charges include interest for the unexpired period of te bill plus some service charges, Bill financing is the most liquid one from the banker's point of view since, in time of emergencies, they can take those bil to the Reserve Bank of India for tediscounting purposes. In fact, itwas views! Primarily as a scheme of accommodation for banks. Now, the situation s completely changed. Today, it is viewed as a kind of loan backed by security of bills. INVoice price © 6 months ag same and bj 8 ON the norm factoring and Forfatting nancing | perior to the , in many Way pred st of all, it offers high liquidity, in the @ SOY nd quickly through rediscounting, pro F offers quick and high yield, The banker (i) pgccont charges at the time of discounting the ab ; ‘Again, there is every Opportunity to earn the i) AB s of discount and rediscount, conventional and f rate Moreover, bills drawn by business p dishonoured and they are not subject to values. y) Cumbersome procedures to create the obligations to maintain it are comparatis (vi) Even if the bill is dishonoured, there is a. banker has to simply note and p i customer’s account. Bills are always dr. all the parties on the instrument discharged. (wv) »| (vii) Above all, these bills would be for the maintenance of reserve SLR. tis for these reasons, the Reserve Bank y develop a good bill market in India. The i ill Market Scheme as early as 1952 itself spuifications. It has lowered the effective rate cent below the cash credit rate. Despite mai JiIndia to promote and develop a good bill “ly 5 per cent of the total credit extended by “we Bank of India to promote the bill n 6 Service organisations. i. Single area Be buyer. This large buyer is al My ‘on in paying his small suppliers. Th “ financing iS lable 5 type PO Inder this type, the factor p, (iv) Bulk factoring: persis to the debtorg ot 48% finange » fact of assignmen ‘OTS CoNce, ah closing the f0¢ when the factor is no Ted. The Mle Ce ee ork rel sisi (a ancial condition of the ass eeHon work,

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