MBA (Finance)III – Semester, Merchant Banking and Financial Services, Unit 3.1
Functions of a Factor
The functions of a factor are depicted in the chart given below:
Maintenance of Sales Ledger
Maintenance of the clients’ sales ledgers
Sending periodical reports to the client on the current status of
receivables
Maintenance of payment schedule.
Provision of Collection
Facility helps the client in the following ways
Firm may concentrate on its other activities since it is free from
collection work.
Cost reduction, savings in manpower, time and efforts due to
outsourcing of the collection activity.
The systematic collection of receivables is possible with the help
of professional manpower.
Due to the timely demands of the factor, the prompt collection can
be done.
Factor initiates legal action on customers to secure payments.
Financing Trade Debts
The factor may pay in advance up to 80% of assigned book debts.
The factor may finance to his client through purchase of Book
debts.
Credit Control
The factor may fix the credit limits for accepted customers to
control the credit risk.
The factor may examine 3C’s (Character, Capacity and Credit
worthiness) of the client’s customer.
The factor may purchase trade debts within his approved limits.
Advisory Services
Factor may give information to his client like current market
trend, feedback of the client’s customers etc.
Factor may give advice to their client regarding other financial
services like leasing, hire-purchase and merchant banking etc.
Factor may assist in evaluation of the procedures of invoicing,
delivery and sales returns.
