Page 198 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 13: Factoring and Forfeiting
Sukhpreet Kaur, Lovely Professional University

Unit 13: Factoring and Forfeiting Notes

CONTENTS
Objectives
Introduction

13.1 Meaning of Factoring and Forfeiting
13.2 Mechanics of Factoring and Forfeiting
13.3 Discounting of Bills

13.4 Rediscounting of Bills
13.5 Summary
13.6 Keywords
13.7 Self Assessment
13.8 Review Questions

13.9 Further Readings

Objectives

After studying this unit, you will be able to:
State the meaning of factoring and forfeiting
Describe the mechanics of factoring and forfeiting
Define discounting of bills

Explain rediscounting of bills
Introduction

Receivables constitute a significant portion of current assets of firm. But, for investment in
receivables, a firm has to incur certain costs such as costs of financing receivables and costs of
collection from receivables. Further, there is a risk of bad debts also. It is, therefore, very
essential to have a proper control and management of receivables. In fact, maintaining of
receivables poses two types of problems:
1. the problem of raising funds to finance the receivables, and
2. the problems relating to collection, delays and defaults of the receivables.

A small firm may handle the problem of receivables management of its own, but it may not be
possible for a large firm to do so efficiently as it may be exposed to the risk of more and more
bad debts. In such a case, a firm may avail the services of specialised institutions engaged in
receivables management, called factoring firms.
At the instance of RBI a Committee headed by Shri C. S. Kalyan Sundaram went into the aspects
of factoring services in India in 1988, which formed the basis for introduction of factoring
services in India. SBI established, in 1991, a subsidiary-SBI Factors Limited with an authorized
capital of 25 crores to undertake factoring services covering the western zone.

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