Types of Factoring

There are different forms of factoring arrangement based on the type of special features attached to them which are as follows:

Domestic Factoring

Export Factoring

Full servicing factoring

Maturity factoring

Advance factoring

Agency discounting

Bank participation factoring

Domestic Factoring

Domestic factoring is the transaction of sales relating to domestic, which is categorized into three forms such as:

Disclosed Factoring

Undisclosed Factoring

Invoice Discounting

Disclosed Factoring

The factoring agreement is disclosed to the firm’s customers. The customers will make payment directly to the factor. The arrangement for factoring may take in the form of either Recourse factoring or Non- recourse factoring

Recourse factoring - The factor purchases the receivables of the firm and collects the debts from the customer. The firm is responsible to the factor when the customer fails to pay the amount on maturity.

Non-recourse factoring - The factor undertakes to collect the debts from the customer in case of non-recourse factoring. The factor may settle the amount to its client then and there or pay the balance amount at the end of the credit period. The advantage of non-recourse factoring is that the firm may discontinue the service of factoring at any time.

Undisclosed

The factor realizes money from the debtors in the name of the seller because the factoring arrangement is not informed to the firm’s customers. This method is popular in UK.c.

Invoice Discounting

The factor provides finance through discounting the bills. The rate of discount is based on market trends.

Export Factoring

A bank (factor) located in the exporter’s country collects a guaranteed payment of export proceeds on behalf of his client (exporter) from debtor (importer). This is called ‘export factoring’.

Full Servicing Factoring

It is also known as without recourse factoring service. It offers all types of services such as finance, sales ledger administration, collection, debt protection, and advisory services. Its specialty is that it gives protection to the client against bad debts.
Maturity Factoring

Under this type the payment is made only on the guaranteed payment date or on the date of collection. Financing facility is not provided to the client. All other facilities are provided by it.

Advance Factoring

The factor makes an advance payment to its client. The advance payment covers 70 to 80 percent of the receivables which are factored. The factor collects interest on the advance payments made. The balance amount is settled to his client on the date of maturity.

Agency Discounting

This kind of factoring, the factor provides only financing facility and protection against bad debt. The other services such as maintenance of sales ledger and carrying out the collection of book debts etc are not provided.

Bank Participation Factoring

In this system of factoring, the factor arranges an advance amount from a bank. For this service the factor pays interest to the bank and makes the advance to the client.