Page 230 - DMGT303_BANKING_AND_INSURANCE
P. 230

Unit 11: Innovations in Banking




          1.   Deposit Products: Savings Account - Current Account - Demand Deposits -Term Deposits  Notes
               - Certificate of Deposit
          2.   Remittance Products: Demand Draft - Travelers Cheques - Mail Transfer - Telegraphic
               Transfer - RTGS-SFMS
          3.   IT Products: MICR Cheques - Channel Banking - Core Banking - Internet Banking Mobile
               Banking - ATM's - Debit Card - Credit Card
          4.   Loan Products: Short Term Loans-Long Term Loans - Consumer Loans - Education Loans
               - Housing Loans - Business Loans - Farm Loans - Kisan Credit Cards - Corporate Loans -
               Syndication - Microfinance

          Services

          The growth of financial markets during the last 15 years has been phenomenal. This period has
          witnessed tremendous changes in the composition of markets. The share of banks in the total
          financial transactions recorded had fallen behind the security market transactions.
          Financial markets, in the process, afforded efficient risk sharing mechanism among investors
          through an array of innovative financial instruments with very different risk-return relationship.
          For example investors, who are extremely risk averse, may invest a large part of their wealth in
          risk-free securities such as treasury bills, whereas, more risk-tolerant investors may select risky
          stocks, while investors with moderate risk preference may choose a combination of bonds and
          stocks.

          11.12 Factoring


          Features


              Buying the receivables of a company for a value.
              Enables better management of receivables.
              Involves outright sale of receivables of a manufacturing or trading firm to a financial
               institution called "factor".
              Could be with or without recourse to the client.

              A fee, as a percentage of the value of receivables, is collected by the factor.
          Factoring is a financial option for the management of receivables. In simple definition it is the
          conversion of credit sales into cash. In factoring, a financial institution (factor) buys the accounts
          receivable of a company (Client) and pays up to 80% (rarely up to 90%) of the amount immediately
          on agreement. Factoring company pays the remaining amount (Balance 20% - finance cost-
          operating cost) to the client when the customer pays the debt. Collection of debt from the
          customer is done either by the factor or the client depending upon the type of factoring. We will
          see different types of factoring in this article. The account receivable in factoring can either be
          for  a  product  or  service.  Examples  are  factoring  against  goods  purchased,  factoring  for
          construction services (usually for government contracts where the government body is capable
          of paying back the debt in the stipulated period of factoring. Contractors submit invoices to get
          cash instantly), factoring against medical insurance etc. Let us see how factoring is done against
          an invoice of goods purchased.







                                           LOVELY PROFESSIONAL UNIVERSITY                                   225
   225   226   227   228   229   230   231   232   233   234   235