Regulation of Bank Finance^395
In addition, factor provides credit protection to his client by purchasing without recourse
to him every debt of approved customers (within the stipulated credit limit) and assumes
the risk of default in payment by customers only in case of customersí financial inability
to pay.
- Advisory Functions
At times, factors render certain advisory services to their clients. Thus, as a credit
specialist a factor undertakes comprehensive studies of economic conditions and trends
and thus is in a position to advise its clients of impending developments in their respective
industries. Many factors employ individuals with extensive manufacturing experience
who can even advise on work loan analysis, machinery replacement programmes and
other technical aspects of a clientís business.
Factors also help their clients in choosing suitable sales agent because of their close
relationships with various individuals and non-factored organisations.
Types of Factoring
Over a period of time, the factors world over have devised different types of factoring
services to suit the requirements of their clients. On the basis of the nature of the
services, factoring may be categorised as:
- Full Factoring
- Recourse Factoring
- Maturity Factoring
- Advance Factoring
- Undisclosed Factoring
- Invoice Discounting
- Buyer-based Factoring
- Seller-based Factoring
- Full Factoring
Under full factoring arrangement, a factor renders services of collection of receivables
and maintains sales ledgers, credit control and credit protection. On the basis of credit
worthiness of the firm a monetary limit is fixed upto which trade credit provided by the
client will be taken over by the factor without recourse to the client. The liability of the
factor is limited only to the defaults arising out of customersí financial inability to pay. If
the payment is withheld for reasons of dispute regarding inherent defect in goods,
quality, quantity, counter claim, etc., recourse will be available to the factor against the
client.