Types of Invoice / Receivable Factoring

There are various types of factoring based variations in the different services and agreement between the business and the factor. Different such factorings are recourse and non-recourse factoring, advance and maturity factoring, bank participation factoring, supplier guarantee factoring, disclosed and undisclosed factoring.

Types of Invoice Factoring

Recourse Factoring

Recourse factoring means the credit risk of the customers of the business is assumed by the business only and not by the factor. Essentially, in this type of factoring the factor is only a financing and collecting agent for the business. Commission charges would have been higher if the factor would also have assumed the credit risk. Here, the charges would only include a component of interest on the money advanced and service charge for collecting the money.

Non-Recourse Factoring

Under this type of factoring, unlike recourse factoring, the factor assumes the risk of customer credit. In a case of default by the customer, the business is not liable to pay anything. Off course, higher commission charges are charged to the business for this additional service.

Types of Invoice/Receivable Factoring

Advance Factoring

Advance factoring implies the payment of money in advance. As soon as the invoice is taken under factoring, the invoice amount less commission and the margin are paid to the business. The margin is paid post realization of the money from the customers. This margin ranges anywhere between 5% to 25%.

Maturity Factoring

There are factoring services which offer the benefit of collection mainly. Maturity factoring is that kind of factoring where the invoice amount is paid after the realization from the customer. The job of a factor is to collect the money from the customer. Here, the charges of factoring would also be less as the component of interest would be dropped.

Bank Participation Factoring

This is a special arrangement whereby the margin of a factor is also financed by the bank. This is most suitable for the business for whom even the small margin of money is important. This kind of factoring arrangement allows the business to have complete finance of the account receivables and needs almost no money to conduct business.

Full Factoring

It is the most popular form of factoring where the factor provides the client with all types of facilities like protection from bad debt, collection, etc.

Domestic and Cross Border Factoring

Factor giving the services of purchase, management, funding and collection of accounts receivable in domestic territory is termed as domestic factoring. Here three parties are involved i.e. buyer, seller, and factor who are located in the same country. Whereas, if the same services are provided in international markets then it is termed as cross-border factoring. Here four parties are involved i.e. exporter, importer, export factor and import factor.

Suppliers Guarantee Factoring

This is another very innovative way getting out of difficult business situations. In this type of factoring, the role of factor involves taking guarantee of the business. The factor guarantees the payment of the suppliers of the business and on the other side takes factors the invoices of the business. Once the money is realized from the invoices, the factor first makes payment to the suppliers of the business and then the remain portion of the business after cutting necessary fee for the same.

Disclosed And Undisclosed Factoring

Disclosed factoring means the customer of the business is aware of the factoring arraignment of the business. On the contrary, in undisclosed factoring, the customer does not know about the factoring arrangement. The entrepreneur puts a stamp on the business indicating the payment to be made to the factor in place of the staff of the business.

Last updated on : March 16th, 2018
What’s your view on this? Share it in comments below.

Leave a Reply

Import and Export Letter of Credit
  • Types of Letter of Credit (LC)
    Types of Letter of Credit (LC)
  • Invoice Factoring Process
    Invoice Factoring Process
  • Issue of Company Debentures
    Issue of Company Debentures
  • Receivable/ Invoice Factoring
    Receivables / Invoice Factoring
  • Subscribe to Blog via Email

    Enter your email address to subscribe to this blog and receive notifications of new posts by email.

    Recent Posts

    Find us on Facebook

    Related pages

    compounded future value formulashort note on debentureweighted average cost of capital problems and solutionshow do you calculate waccdisadvantages of bank loansdefinition of debit and credit in accountingnet profit percentage calculatordiscounted profitability index dpiworking capital sales ratiousance letter of creditinstitute of cost and management accountants icmaoperating leases differ from capital leases in thatdefinition of inventory turnover ratiotypes of mergers and acquisitions with examplessimple payback period calculatorlease financing in indiameaning of sweat equityhow to find acid test ratioliquid asset meaningforex meaning in hindifinancial leverage percentage formuladebentures meaning in accountingamerican depository receiptdebt management ratios definitionbills payable accounting entriesvolume price mix variance analysiswhat does the accounts receivable turnover ratio measuredebt financing advantages and disadvantagesliquidity calculation formulasg&a operating expensebusiness overdraft rates comparisoncurrent ratio formula calculatordouble accounting definitionmanagerial accounting and decision makingsources of internal and external financeirr fomulawhat is accounts receivable turnoverhow to improve liquiditydisadvantages of economies of scaleoverdraft definventory control abc analysisadvantages and disadvantages of leasing assetsacid test ratio calculatornpv with examplewhat is the difference between shares and debenturescash accounting versus accrual accountingcalculate paybackimpairments financedifferent types of mergers and acquisitionsfactoring in accountingadvantages of managerial economicsroi roceadvantages of the payback methodaccounting ebitindirect expenses examplesabc factoringcurrent ratios by industryleasee meaningadvantages of conglomeratesroi rocediscount payback periodroce analysiswhat is acid test ratio formulareturns on capital employeddefinition of owner's equitydrawback defoverdraft facilityasset management ratios definitioniscr formuladifference between financial and managerial accountingbill of exchange disadvantageslimitations of liquidity ratiosexample of conglomerate mergergdr pptaccounts payable period formulahow to calculate the discounted payback periodhypothecated stock