Costs and benefits of factoring, Managerial Accounting

Two types of costs concerned in factoring are as:

1) The service fee or factoring commission

2) The interest on advances granted through the factor to the firm.

Factoring commission is paid to cover credit maintenance, evaluation and collection of sales ledger and other services and covering bad debt losses. The factoring commission will dependable upon the net volume of receivables, the size of particular receivables and quality of receivables. And the commission for non-recourse factoring is superior to recourse factoring as the former factor supposes full credit risk.

In India the cost of factoring varies by 2.5 to 4 percent where as in developed countries it ranges from 1 to 3 percent.

The interest on advances is typically higher than the prime lending rates of the bank or the bank overdraft rate. Inside the United States of America, factors charge a premium of 2 to 5 percent over and above the prime interest rate.

The high cost of factoring is partly offset through the benefits of factoring some of that are as follows:

- factoring give specialised service in credit management, thus freeing resources in the form of management's attention and time that they can focus on core issues of marketing and manufacturing and

- Factoring assists the firm to save cost of credit administration due to the scale of economies and also specialisation.

Posted Date: 4/9/2013 5:30:30 AM | Location : United States

Related Discussions:- Costs and benefits of factoring, Assignment Help, Ask Question on Costs and benefits of factoring, Get Answer, Expert's Help, Costs and benefits of factoring Discussions

Write discussion on Costs and benefits of factoring
Your posts are moderated
Related Questions
The other source of spontaneous short-term financing is the accrued expenses which arise by the general conduct of business. An accrued expense is an expense which has been incurre

How marginal costing would improve the problems faced in absorption costing on manipulation of profits.

1. A firm's independent auditors have the responsibility to: a. assess the firm's accounting policies. b. ascertain the firm's profit potential. c. uncover all fraudulent

Budgetary control According to CIMA the establishment of budgets relating the responsibilities of executive to the requirement of a policy and the continuous comparison of achi

Exact management of receivables acquires a suitable collection policy that outlines the collection procedures. Collection policy consider as the procedure adopted through a firm to

what is a base of managerial accounting

Determine the Distribution cost and Research cost Distribution cost: The cost of sequence of the operations which begin with making the packed product available for dispa

???? ????? ???? ???? ??????? ???? ??????? ??????? ???. ???? ?????? ?????? ?????: (?) ??????? ??????? ??????? ????? ?? ????? ????? ?? (?) ???? ??????? ??????? ?? ???? ???? ????? ?

discuss the applicability of an operating cycle in vegetable growing in a low developed country like Uganda- Africa