Friday, April 14, 2006
Factoring Software
Factoring software can be defined as an interacting, continuing, future-oriented structure of equipment and procedure, designed to generate and process information flow that can aid business executives in the management of their programs.
Factoring software involves broader and more inclusive activity then, say, research. It includes determining and specifying the data needed, the generation of this information by means of research then the processing of this data. While this is a system concept, research usually deals with fragmented, unrelated research projects, done to solve an existing problem identified by some executive.
Software is used on a continuing basis, serving as both a prognosis and a diagnosis. It is preventive as well as curative medicine for factoring companies. Defining the information needs is the most important step in the development of factoring software. The efficacy of the system as a whole depends on this basic step. When clarity is lacking with regard to information needs, the software as a whole gets misdirected and handicapped. Good software recognizes that different executive levels in the company require different types/ segments of information and it ensures that information needs of various executive positions in the company are defined by the concerned executive themselves.
Good software should fulfill the following requirements. It must be unified. It must be conceived and used as a decision support system. It must be compatible with the company and with the overall level of sophistication of the firm. It must be user oriented and it must secure the involvement of users. It must also involve and motivate the suppliers of the information. It must be economical. The cost value ratio of the information processed by the software should be favorable to the firm. It must be capable of absorbing smoothly any changes that may become necessary in the system.
Factoring Services
Factoring services means managing the financial operations of an organization to achieve the objective of the enterprise. The basic financial operations are investment, which deals with acquisition of fixed assets; financing, which deals with the raising of required funds from various sources; and profit appropriation, which deals with appropriating the profit earned by the enterprise among the suppliers of funds.
Regarding investment, assets/projects are to be selected only by considering their net returns. Regarding financing it is to be ensured that the firm gets the required finance at the lowest possible cost. Similarly, regarding profit appropriation it is to be seen that sufficient fund is provided for the developmental activities of the enterprise without impairing the interest of the suppliers. In a firm where these operations are planned and controlled properly it can be said that there exists efficient factoring services.
All the operations and resources in a business organization are managed with the same broad objective, i.e., to attain the objective of the enterprise. So each resource or area should be managed in such a way to contribute to the fulfillment of the objective for each functional area. According to the objective of profit maximization the ultimate goal of a business enterprise is to maximize its profits. All the efforts of the organization are to be directed to achieve this goal.
Business is for earning profit. When profit earning is the aim of the business, profit maximization should be the obvious objective. Profitability is an indicator to the efficiency with which the firm is managed. The higher the profit, the better the efficiency. For growth and expansion, profit is the main source of finance. To meet unforeseen contingencies reserves are necessary which is possible only if there is enough profit. However the term profit is vague. It may assume different meanings in different contexts. It may be short-term vs. long-term, or profit to the equity shareholders vs. total profit. It may be profit before tax or profit after tax. It may be absolute profit or profit in relation to investment.
Factoring provides detailed information about factoring, credit card factoring, loan factoring, invoice factoring and more. Factoring is the sister site of Buying Investment Properties.
Loan Factoring
Factoring of receivables is an arrangement whereby a company sells its accounts receivables to another company (banks and other institutions) that specializes in buying them and obtains the necessary financial accommodation. It is the most popular method of short-term financing in the US. Factoring offers the following advantages: relief to manufacturers and sellers from the bother of collection of book debts, saving in time and man-power required for debt collection, and last but not the least, adequate and better source of financing.
The factoring institutions render the following functions: Credit recording- that involves maintenance of debtor’s ledgers, collection schedules etc. Secondly, there is Credit administration that includes the collection of debts. Thirdly, there is credit financing, whereby the factor advances money against receivables. Finally, there is finance and business information wherein advices are given to customers on current trends and challenges.
Commercial paper is an important money market instrument, which is in the form of unsecured promissory notes issued by firms to raise short-term funds. Certain conditions are to be satisfied before the issue of commercial paper. Permission should also be obtained from the credit rating agencies. Commercial papers are issued for a period ranging from 3 months to 6 months. Commercial paper offers alternative source of raising short-term finance, helpful in times of tight bank credit and is a cheaper source of finance.
Term loans are those loans that are extended for a specific period ranging from 1 to 15 years. Medium term loans are extended for a period of 5 years and long-term loans are granted for a period of 15 years. Term loans are granted for establishment, renovation, expansion and modernization of industrial units as well as meeting the requirements of core working capital and for repayment of bonds and preference shares. Term loans are usually secured. They have either a fixed or a floating charge against the assets of the company. They are granted on the basis of a formal agreement, which contains the terms, and a condition of providing loans.
Factoring provides detailed information about factoring, credit card factoring, loan factoring, invoice factoring and more. Factoring is the sister site of Buying Investment Properties.
Invoice Factoring
Factoring is selling invoices to receive your money at the moment, instead of waiting for say, two to three months. That’s why it is one of the most important finance management tools - especially for a small company that does not create debt. Factoring does not require you to give up any ownership in your company.
For carrying out any operation, finance is required. So, necessary finance is to be raised, allocated and controlled for the effective execution of any function. Success or failure of the firm as such depends on how effectively the finance part is undertaken.
The finance function is comprised of the determining and raising of necessary funds from appropriate sources and their proper allocation and control. The aim is to attain the enterprise objective of wealth maximization. The wealth or the value of the firm is at the maximum when the return or profit is also at the maximum. But with the increase in return the risk also increases. For example, holding less inventory may increase profit because a lesser amount is locked up in inventory, but this may increase the risk as the chance of running out of inventory is higher.
According to experts, factoring process has some distinct advantages. For example, unlike a loan, collateral is not required in the factoring process, there is no interest, and no debt shows up on your balance sheet. What’s more, fees are paid in the form of a percentage discount, deducted after all of the invoices have been paid to the Factor. The discount amount depends on the length of time it takes to collect on the invoices.
Always keep capital budgeting and working capital on mind while understanding the finance management. Capital budgeting is the evaluation and ranking of investment projects with the aim of finding out the most suitable project from among alternative courses. On the other hand, working capital is the amount of capital required for the day-to-day running of the enterprise.
Credit Card Factoring
Credit policy refers to the combination of decisions pertaining to variables such as credit standards, credit terms and collection. Credit standards constitute the various criteria on the basis of which the customers, to whom credit is to be granted, are evaluated by the firm. Credit terms contain the terms and conditions of extending the credit facility. They include, duration of credit, terms of payment, delivery schedule, discounts etc. Collection efforts comprise the steps taken by the firm in order to collect the book debts from the customers.
There are different types of credit policies being followed by factoring companies. A firm may either follow a tight credit policy or a liberal credit policy. A firm is said to be following a tight credit policy where it sells on credit on a highly selective basis only to those customers with proven credit-worthiness and are financially strong. A firm following a liberal credit policy sells on credit to customers on liberal terms and standards. Credit is granted even for longer periods to those customers whose credit-worthiness and financial soundness are well known.
A tight credit policy means rejection or refusal of certain types of accounts whose credit-worthiness is doubtful. This results in loss of sales and consequently loss of revenues. When the firm loosens its credit policy, two types of administration costs are incurred viz., the cost of credit investigation and supervision and the collection costs. An immediate consequence of liberal credit policy is the accumulation of bad debts, where the firm is unable to collect the debts. This happens because the firm tends to sell even to such customers with relatively less credit standing. In modern days, the credit policy is used as an effective marketing tool capable of boosting the sales volume of the firm. This may be used to maintain the market share, especially in a declining market. Credit policy helps to retain old customers and create new customers by luring them away from competitors.
Factoring
A factor is basically a financial institution that purchases accounts receivable from businesses. The factor normally bears the credit risks associated with the accounts receivable purchased by it. There are about twenty firms in the United States engaged solely in factoring. These firms raise their operating funds by issue of equity and debt capital.
The factoring agreement governs the relationship between the factor and the business whose accounts receivable the factor purchases. The following conditions are typically found in factoring agreements. The factor will select only those accounts receivable which appear to be acceptable to it. The sales of accounts receivable will be done to the factor on a non-recourse basis. This implies that the factor has to absorb the losses arising from uncollectible accounts.
The factor would set up an account, similar to a bank deposit account, for the firm. Monies will be deposited in this account as payments are received or as due dates arrive. The firm can freely withdraw amounts from this account. Surplus balances in the account earn a certain rate of interest. The factor is liable to pay the firm on the last day of the credit period or when the account is collected, whichever occurs first.
The factor will advance money to the firm against not-yet-collected and not-yet-due accounts receivable. These advances, representing a negative balance in the firm’s account, carry a certain rate of interest. Factoring costs consist of three elements: factoring commission, interest levied on advances, and interest paid on surplus balances. Factoring commission is payment to the factor for administering the tasks of receivables management and bearing the risk of bad debt. Factoring commission is usually 1 to 3 per cent of the face value of the accounts receivable factored. The interest period on advances may be 2 to 4 per cent higher than the prime rate.
Factoring provides detailed information about factoring, credit card factoring, loan factoring, invoice factoring and more. Factoring is the sister site of Buying Investment Properties.
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