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factoring - be the amount which is received on specific...

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In   financial management      is new topic which has included in   working capital      chapter. Factoring is that transaction in which  company       sells its  receivable debt amount to third party. For example, I want to get $ 15000 from different   debtors     , if I sell it to XYZ bank on $ 14000. This  transaction will be factoring. This is also our asset. In simple word, factoring is technique of conversion of debtor in liquid asset. Factoring Vs Short Term Loan Factoring is not short term loan. Factoring is the contract of sale of total or some amount of receivables at discount but short term loan may 
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Unformatted text preview: be the amount which is received on specific rate of interest. Sometime, total receivables may collateral security of secured short term loan. Importance of Factoring Deal 1. Factoring is important source of cash inflow. It can be used for fulfilling the need of cash for paying our liabilities on the time. If we see that debtor conversion period is too long but creditor conversion period is too short, we deal of factoring for paying our creditors. 2. We have to maintain our cash balance for paying expenses. We estimate our cash balance with following formula and if there is any shortage of our physical cash balance, we may contract of factoring....
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