(^396) Financial Management
- Recourse Factoring
In this type of factoring the factor does not provide any protection to the client against
a customerís failure to pay debts. It may, therefore, not be necessary for the factor to
either approve the customer or fix a credit limit. If the customer does not pay the
invoice on maturity for any reason, the factor is entitled to recover from the client the
amount paid in advance. - Maturity Factoring
This type of factoring involves no financing ab initio and hence no drawing limit is
made available to the client. But the factor administers the clientís sales ledger and
renders debt collection services. The amount of each invoice is made over to the client
at the end of the credit period on an agreed maturity date, less the factor charges. The
maturity date is decided upon at the commencement of the agreement by reference to
the average-time taken by the client to collect a debt. The maturity date bears no
relation to the date on which the receivable is actually due for payment as it is a ëestimated
data of collection.í
Such factoring could be with or without recourse. If it is without recourse, the amount
will be made over to the client regardless of whether the factor has been able to collect
the invoice or not. If the debtor becomes insolvent, on proof of involvency, payment will
be made to the client even before maturity. In with recourse factoring, the factor will
either pay the client on collection of invoice or on maturity date with recourse later on. - Advance Factoring
In this kind of factoring, factor is prepared to pay for debts in advance of receiving the
payment due from the customers. This is only a prepayment and not an advance. A
drawing limit is made available to the client as soon as the invoice is accounted for. - Undisclosed Factoring
Unlike all other types of factoring, in undisclosed factoring customers are not informed
about the arrangements between the factor and the client The factor maintains the
sales ledger on the basis of the copy of invoice. He provides the client with either debt
default cover or finance or both as desired. Debt collection is done by the client who
makes over payment of each invoice to the factor. The factor keeps a check on its risk
by receiving from the client on age-wise analysis of debts at regular intervals. The
types of services which may be offered under an undisclosed arrangement are very
flexible. This may be on non≠ recourse basis and/or seasonal and/or selective basis. - Invoice Discounting
Under this arrangement the factor buys all or selected invoices of its client at a discount.
The factor neither maintains sales ledger for his client nor undertakes debt collection
function. He only provides finance to his client.