Question

Briefly discuss any two features of the following sources of finance available to an organisation in India.

Factoring

Answer 1

The features of Factoring are as follows:

• It is a short-term source of finance.
• Business sells its accounts receivable (invoices) to a third-party (the factor) at a discount.
• There is an immediate cash flow.
• No collateral is required.
• There is a charge factoring fees for administrative services.
• Discount is deducted from the invoice by the factor.
• It involves three parties in factoring.
• The burden of risk is on the factor.
• It is legally binding on the client.