What Is Factoring

Topics: Debt, Factoring, Trade finance Pages: 49 (15660 words) Published: February 4, 2013
Factoring in India [pic]


Chapter 1 Introduction Page no
1.1 Evolution of Factoring05 1.2 The Kalyanasundaram Committee Recommendations on Factoring07

Chapter 2 The Concept of Factoring09
1. Mechanics of Factoring10
2. Types of Factoring10
3. Export Factoring14
4. Mechanics of Export Factoring17
5. Types of Export Factoring18
6. Scope of Export Factoring in India21
7. Services Offered by Factors22

Chapter 3 The Players26

Chapter 4 Factoring Vis-à-Vis Other Means of Financing28 1. Services Currently Available28
2. Limitations of Current Arrangement29
3. Bills of Exchange Vs Factoring32
4. Conclusion32

Chapter 5 The Market34
1. SSI Units and Factoring34
2. Factoring as a Remedy35
3. Factoring for SSI38
4. Other Potential Segments38
Chapter 6 Relevance of Factoring Services in India40 1. The Legal Framework41
2. The Present Law42
3. Suggested Legal Framework 44

Chapter 7The Hurdles48
1. The Summary49
2. Opinion from Factoring Representatives51

Chapter 1



The term 'Factor' has its origin from the Latin word 'farce' meaning 'to make or do’, i.e. to get things done. The dictionary defines Factor as an agent, particularly a mercantile agent. Factoring has a long and fascinating history which traces back to several centuries. In early stages, Factors were itinerant merchants who were entrusted with merchandise belonging to others. They were the `middlemen' between countries which were still in early stages of development. It is interesting to note that Factoring in one form or other was involved in much of the world's commerce.

The growth of Factoring, in a fairly recognizable form, took place in the fifteenth and sixteenth century with the advent of the period of exploration and colonization by Great Britain, France and Spain. When the mother countries started shipping goods to the settlements under the control of foreign lands, the Factor arranged for the sale and distribution of these goods and became the local representatives of the manufacturers. Initially they maintained extensive storage facilities for the merchandise received by them from abroad and made arrangements for the cartage of such merchandise to customers throughout their respective territories. The Factors principal was to sell such merchandise on the best terms. The Factors didn't own the merchandise, but were responsible for its safe keeping, as well as for the proceeds they received upon its sale. In course of time, Factors prospered and grew in economic strength.

To the earlier services, rendered to their foreign principals, they added the practice of making advance payments to their principals against the security of the merchandise in their possession. The Factors also obtained information relating to local customers (which couldn't be transmitted in good time to the principals abroad) and assumed the risk of losses, in case they were unable to collect the amounts from the customers. Thus, the Factor substituted itself as a debtor of high credit standing for individual customers of uncertain creditworthiness, from whom the principal, otherwise, would have had to collect the amounts due, individually.

During the later years of the nineteenth century and the early years of the present century, the storage, selling and general merchandise functions...
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