Podcast
Questions and Answers
What is one of the main services provided by a factor in factoring?
What is one of the main services provided by a factor in factoring?
- Long-term loan agreements
- Collection of the client's debts (correct)
- Insurance against market fluctuations
- Investment in real estate
Which of the following statements about the costs associated with factoring is true?
Which of the following statements about the costs associated with factoring is true?
- All forms of financing incur similar costs.
- Factoring is cheaper than all forms of financing.
- Factoring has no associated fees.
- Factoring is generally more costly than most other funding sources. (correct)
What is a key characteristic that distinguishes non-recourse factoring from recourse factoring?
What is a key characteristic that distinguishes non-recourse factoring from recourse factoring?
- The client receives a higher discount rate.
- The client must repay any outstanding debts.
- The client retains complete control over debt collection.
- The factor assumes the risk of bad debts. (correct)
How did factoring arrive on the Indian financial scene?
How did factoring arrive on the Indian financial scene?
Which organization is NOT mentioned as providing factoring services?
Which organization is NOT mentioned as providing factoring services?
What is a key characteristic of borrowed funds?
What is a key characteristic of borrowed funds?
What advantage does factoring offer regarding the protection against bad debts?
What advantage does factoring offer regarding the protection against bad debts?
Which of the following is considered an internal source of funds?
Which of the following is considered an internal source of funds?
What type of finance companies also provide factoring services?
What type of finance companies also provide factoring services?
When might a business require long-term funds?
When might a business require long-term funds?
In which scenario would recourse factoring be applicable?
In which scenario would recourse factoring be applicable?
What determines the best source of funds for an organization?
What determines the best source of funds for an organization?
External sources of funds primarily come from which of the following?
External sources of funds primarily come from which of the following?
What is one limitation of internal sources of funds?
What is one limitation of internal sources of funds?
Which financing option would likely be preferred for addressing short-term operational expenses?
Which financing option would likely be preferred for addressing short-term operational expenses?
Which statement about retained earnings is correct?
Which statement about retained earnings is correct?
What is a common benefit of obtaining loans from financial institutions compared to commercial banks?
What is a common benefit of obtaining loans from financial institutions compared to commercial banks?
What advantage do financial institutions offer beyond just providing funds?
What advantage do financial institutions offer beyond just providing funds?
How can obtaining a loan from financial institutions help a company in the capital market?
How can obtaining a loan from financial institutions help a company in the capital market?
What impact does the floating interest rate on ICDs usually have on borrowing companies?
What impact does the floating interest rate on ICDs usually have on borrowing companies?
What restriction might be imposed on a borrowing company by financial institutions?
What restriction might be imposed on a borrowing company by financial institutions?
During which economic period can financial institutions still provide funding?
During which economic period can financial institutions still provide funding?
How does the repayment structure of loans from financial institutions typically benefit businesses?
How does the repayment structure of loans from financial institutions typically benefit businesses?
What role may financial institutions take concerning the management of the borrowing company?
What role may financial institutions take concerning the management of the borrowing company?
What are Global Depository Receipts (GDR) primarily used for?
What are Global Depository Receipts (GDR) primarily used for?
Which of the following institutions is a significant source of foreign currency loans for business?
Which of the following institutions is a significant source of foreign currency loans for business?
What rights do holders of Global Depository Receipts (GDRs) possess?
What rights do holders of Global Depository Receipts (GDRs) possess?
How can holders of GDRs interact with their investments?
How can holders of GDRs interact with their investments?
What role do International Agencies and Development Banks play in the economy?
What role do International Agencies and Development Banks play in the economy?
Which currency are Global Depository Receipts (GDR) denominated in when issued?
Which currency are Global Depository Receipts (GDR) denominated in when issued?
What is a key characteristic of Global Depository Receipts (GDR)?
What is a key characteristic of Global Depository Receipts (GDR)?
Which institution emerged as a major source of foreign currency loans for Indian industry?
Which institution emerged as a major source of foreign currency loans for Indian industry?
How much money have five firms raised through GDR offerings this year?
How much money have five firms raised through GDR offerings this year?
Which company mentioned is planning to raise $20 million through a GDR issue?
Which company mentioned is planning to raise $20 million through a GDR issue?
What is the total worth of GDR issues that nearly 20 companies are waiting to launch?
What is the total worth of GDR issues that nearly 20 companies are waiting to launch?
What does GDR stand for in the context of this content?
What does GDR stand for in the context of this content?
Which two banks recently raised funds from the GDR market?
Which two banks recently raised funds from the GDR market?
What is a possible reason companies now prefer GDR issues over FCCB?
What is a possible reason companies now prefer GDR issues over FCCB?
What is the purpose of an IDR in the Indian securities market?
What is the purpose of an IDR in the Indian securities market?
Which firm was the first to issue Indian Depository Receipts (IDRs)?
Which firm was the first to issue Indian Depository Receipts (IDRs)?
Study Notes
Factoring
- Factoring is a financial service where a "factor" provides services such as discounting bills, collecting debts, and offering protection against bad debt losses.
- The factor purchases receivables from a client at a discount and takes over the responsibility of collecting payments from the buyer.
- Two methods of factoring exist: recourse and non-recourse. Under recourse factoring, the client bears the risk of bad debts, while under non-recourse factoring, the factor assumes responsibility for payment.
- Factoring is generally costlier than other sources of finance like bank credit.
- Factoring emerged in India in the early 1990s due to Reserve Bank of India (RBI) initiatives.
- Organisations providing factoring services include SBI Factors & Commercial Services Ltd., Canbank Factors Ltd., Foremost Factors Ltd., State Bank of India, Canara Bank, Punjab National Bank, and Allahabad Bank.
- Non-banking finance companies and other agencies also offer factoring services.
Merits of Factoring
- Factoring offers a cheaper source of finance compared to alternatives like bank credit.
Sources of Funds
- Business can raise funds from both internal and external sources.
Internal Sources of Funds
- Internal sources are generated within the business, like accelerating receivables collection, disposing of surplus inventory, and reinvesting profits.
External Sources of Funds
- External sources include suppliers, lenders, and investors.
International Financing
- The globalized business environment provides opportunities for Indian companies to raise funds internationally.
International Sources of Funds
- Commercial Banks: Offer foreign currency loans for business operations.
- International Agencies & Development Banks: Provide finance for international trade and business.
- Global Depository Receipts (GDRs): Securities issued abroad by Indian companies to raise funds in foreign currency. Traded on foreign stock exchanges and can be converted to underlying shares. Holders typically do not have voting rights but receive dividends and capital appreciation.
- Indian Depository Receipts (IDRs): Issued by foreign companies to raise funds from the Indian securities market. Shares are deposited with an Indian depository (custodian of securities) registered with the Securities and Exchange Board of India (SEBI). Residents can bid for these shares in the same way as Indian shares.
- Foreign Currency Convertible Bonds (FCCBs): Issued by Indian companies to raise funds in foreign currency. These bonds can be converted into shares of the issuing company at a predetermined price.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
This quiz covers the concept of factoring in financial services, including its definition, methods (recourse and non-recourse), and significance in India. Test your knowledge on the role of factors and organizations that offer these services. Learn about the evolution of factoring in the Indian financial landscape.
