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Types of factoring

Types of factoring

(1) Notified factoring:

Here, the customer is intimated about the assignment of debt to a factor, also directed to make payments to the factor instead of to the firm. This is invariably done by a legend and the invoice has been assigned to or sold to the factor.

(2) Non-notified or confidential factoring:

Under this facility, the supplier/factor arrangement is not declared to the customer unless or until there is a breach of the agreement on the part of the client, or exceptionally, where the factor considers himself to be at risk.

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(3) With recourse or without recourse factoring:

Under recourse arrangements, the client will carry the credit risk in respect of debts sold to the factor. In without recourse factoring, the bad debts are borne by the factor.

(4) Bank Participation Factoring:

The client creates a floating charge on the factoring reserves in favour of banks and borrow against these reserves.

(5) Export Factoring:

There is usually the presence of two factors: an export factor and an import factor. The former buys the invoices of a client exporter and assumes the risk in case of default by the overseas customers. Because of distance, different condition or lake of information, the export factor usually forms out to an agent, known as the import factor, the administrative job of servicing the debts owed to its exporting clients.

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