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ABOUT Export/Domestic Factoring

Factoring is a type of complete financial package which agrees to pay its client an amount equivalent to the value of invoice (net of charges for commission and fees) which gives the client benefits of improved liquidity position and credit protection along with receivables bookkeeping and collection services. A factoring house (factor) can be a bank or a specialized financial firm specializing in receivables management providing finance through the purchase of invoices or accounts receivable. The client sells its account receivables to the factor to meet short term financial needs. The factor is always more concerned with the creditworthiness of the invoiced party rather than the company from which it has purchased the receivables.

Factoring can be a viable alternative to long-term bank financing, expensive short-term bridge loans or other types of borrowing that create debt on the balance sheet. Factoring is a service that covers the financing and collection of account receivables in domestic and international trade.

One liner for a factoring agent can be “U provide invoice we provide finance”

Types of Factoring:

  1. Full Factoring
  2. Limited Factoring
  3. Disclosed Factoring
  4. Undisclosed Factoring
  5. Domestic Factoring
  6. Export Factoring
  7. Recourse Factoring
  8. Non Recourse Factoring


Any sovereign entity selling goods or services on credit are eligible for such kind of service.

Required Documents

The documents needed vary from case to case. Let FINMART understand your needs and assist you in documents requirement.


A Factor can be a bank or financial institution which specializes in rendering a variety of services like working capital financing through purchase of sale invoices of the client, debts collection, arrangement of sales ledger, book keeping related to sales account.
  1. The seller legally assigns the account receivables to the factor.
  2. The factor in return extends finance against the outstanding receivables purchased by him.
  3. Technically now it is the factor’s responsibility to collect dues from the debtors.
  4. For providing the finance and other services, the factor charges commission or fees from the client.
  5. Depending on type of the agreement you make with the factor, the risk of bad debts might also transfer to the factor against which it charges extra commission by the name of Del Credere commission.
  6. Thus by outsourcing the work of receivables management, the management frees itself from non profitable control or sale related accounting matters and can thus concentrate on production and sales thereby resulting in increased productivity and profits.
  1. Uninterrupted cash supply.
  2. Procure finance without loan.
  3. An outstanding approach to claim zero outstanding.
  4. Conversion of accounts receivable into real money.
  5. Modern way to manage account receivables, risks and incremental cash flows.
  6. Credit assessment of customers (New/Existing).
  7. Hassle free monthly account receivables reporting, sales ledger administration and debtor follow up.
  8. Achieve scalable leverage as the credit line of the business expands.
Factoring is helpful when the seller doesn’t have strong net worth or enough collateral support to arrange for a working capital loan but has good quality receivables. Factoring typically works well for segments in their growth phase where risk remains less. The clear benefit of factoring is that the cash raised is directly proportionate to the underlying receivables. Factor not only fulfils financial needs of the company but also provide with a wide array of services like credit protection against bad debts, sales book management, funds collections etc.
Full factoring is the most comprehensive form of factoring combining all the features of services like collection, credit protection, sales ledger administration, short term finance and any other financial services based on client requirements.
In limited factoring, the factor chooses a limited number of invoices subject to the factoring agreement.
In disclosed factoring, the seller notifies the buyer of the factor's name in the invoice, telling the buyer to make payment to the factor on due date. It can be either recourse or non-recourse factoring. Also this factoring is undertaken only for those debtors who accept the assignment.
In undisclosed factoring, the seller does not notify the buyer of the existence of the factoring deal or the name of the factor on the invoice and hence the debtor makes payments directly to the seller’s account. But this does not change the fact that the factor still retains control, maintains the seller's sales ledger and provides short-term finance against sales invoices.
In Domestic Factoring all the three parties involved namely debtor, client (seller) and factor agent are domiciled in the same country.
In Export factoring there are usually four parties to a cross border factoring transaction. They are: (1) exporter (client), (2) importer (customer), (3) export factor and (4) import factor.
The flow between the parties involved in cross border factoring takes the following shape:
  • The exporter informs his factor about the export of goods in a specified country. The goods are sold on open credit.
  • The export factor writes to factor of importer enquiring about the credit worthiness, reputation etc of the importer.
  • On getting satisfactory information, the exporter delivers the goods to the importer and the relevant documents are delivered to the export factor. The export receivables are on non recourse basis.
  • The export factor contracts out the work of credit checking, sales ledgering and collection to the import factor with respect to the importer.
  • The import factor collects the payment from the importers and effects payment to the export factor as per the terms of assignment in the currency of the invoice.
  • Finally, the export factor makes payment to the exporter depending upon the terms of factoring arrangement.
In recourse factoring, the risk of bad receivables remains with the client, and the factor agent does not assume any risk associated in case the customer fails to pay on maturity. The factor looks only after the receivables collection, but not covers the risk of the buyer failing to pay the debt. The factor can recover the funds from the client in case of such default.
In non-recourse factoring, the factor assumes the risk of non-payment by the client's customers. The factor cannot demand any outstanding amount from the client. An additional fee called a Del Credere commission over and above the regular commission or fees is charged for the risk borne by the factor agent. The factor becomes the sole debtor to the exporter once documentation is complete and goods have been delivered.
A Factoring company undertakes a transaction based on the quality of the receivables whereas a bank takes decisions on providing credit based on a company's financial history, cash flow and collateral.
The cost structures of various factoring companies vary. However, the usual overheads include an interest expense on the funded amount, commission on transactions. Additional charges for various add-on services availed depending on the package drafted with the client company. Factoring arrangements might end up being priced slightly higher because of the risks involved. Also when compared, the rates of factoring agent against the bank interest rates, factoring costs more. Additionally factors provide services which banks do not like credit checks, generation of financial reports etc.
No. The reasons for which can be listed below:
  • Where the credit period offered to customer is long.
  • Where there are contra sales, consignment sales or sale or return arrangements.
  • Where most of the sales are towards associated companies.
  • Where sales are made to retail consumers or small retail outlets.
  • For companies that operate in industries where it takes a long time to convert receivables to cash.
  • For companies that are growing rapidly and need cash to take advantage of new business opportunities.
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