• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

Short-time finance for a company

B

barney

Member
In Chapter 3, when they're talking about short-term borrowing from banks (term loans, revolving credit, international bank loans, bridging loans and evolving credit), factoring is also mentioned. I remember the term from CT2 but can't remember what it means. Can someone tell me what factoring is about please?
 
In Chapter 3, when they're talking about short-term borrowing from banks (term loans, revolving credit, international bank loans, bridging loans and evolving credit), factoring is also mentioned. I remember the term from CT2 but can't remember what it means. Can someone tell me what factoring is about please?

There are two types of Factoring:

Factoring is a method of improving cashflows. There are three parties:

The Invoiced party
The Factor
The Seller. i.e. the person who has sent the invoice.

so, the seller has a bill of how much the invoiced party owes them. it takes it to the factor and gives the bill to him in exchange for money now less charges. the factor then contacts the invoiced party and asks them to settle the bill with the factor.

Recourse and Non Recourse factoring:


Recourse Factoring: A tradeable invoice where the factor has access to the sellers assets if the party on the invoice does not honour its commitment to pay the money to the factor of the invoice. i.e factor does not take on the risk of bad debts.
The buyer buys the invoice at a discounted price, as the seller requires the money immediately.

Non Recourse: Same as above except that the factor takes on the risk for bad debts. Usually cheaper.
 
Non Recourse: Same as above except that the factor takes on the risk for bad debts. Usually cheaper.

Oops, be careful. Actually, as the factor is assuming the bad debt risk, non-recourse factoring would normally be more expensive.
 
Last edited:
Back
Top