Page 205 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes 8. Factoring can broadly be defined as an arrangement in which receivables arising out of
sale of goods/services are sold to the ..................... as a result of which the title to the
goods/services represented by the said receivables passes on to the factor.
9. Factoring business is generated by ..................... in the normal course business.
10. The agreement provides the ..................... and the ..................... understanding reached
between the two for rendering factor service.
11. The ..................... may provide advance finance to the selling firm conditions of the
agreement so required.

12. The ..................... and ..................... negotiate the proposed export sale contract.
13. ..................... ascertains the country risk and credit risk involved.
14. The bill of exchange is an instrument in writing containing an ..................... order.
15. ..................... is individual transaction oriented.

16. The main function of factor is realisation of ..................... .

13.8 Review Questions

1. How is bills discounting and factoring different from each other?
2. What is more important factoring or forfeiting and why?
3. Can factoring and forfeiting be used as:

(a) Compliments and/or
(b) Substitutes and/or
(c) Unrelated activities.

Support your argument with reasons.
4. Discuss the mechanisms of factoring and forfeiting.
5. How do you see the provisions for rediscounting of bills?
6. What makes discounting of bills, a profitable activity?
7. If you become a forfeiter tomorrow, what will be the prime factor you would be taking
care of and why?
8. Examine the effect of RBI notifications for the rediscounting of bills on Indian banks.
9. Illustrate the similarities in discounting of bills and factoring by the help of examples.

10. According to you, what is the journal entry for purchase bill discount?
11. Forfeiting has potential risk of non-payment in general. Why/why not?

Answers: Self Assessment

1. ‘without recourse’ 2. unconditional
3. confidential 4. collect

5. ‘forfait’ 6. Factoring
7. investment 8. factor

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