Costs and benefits of factoring, Managerial Accounting

Assignment Help:

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.


Related Discussions:- Costs and benefits of factoring

Break-even dollars amount, Selling product for 31.00 and Variable expenses ...

Selling product for 31.00 and Variable expenses are 26.00. In order to cover the fixed expenses 31,500 hats must be sold what is the Total fixed cost in dollars?

Steps of choosing an accounting based performance, Steps of choosing an acc...

Steps of choosing an accounting based performance measure Consider the overall goal of the organization as a whole. It is important to choose a measure of accomplishment that r

Credit evaluation, One of the significant elements of credit management is ...

One of the significant elements of credit management is the assessment of the credit risk of the customer.  As assessing risk two kind of errors arise that are as follows. Type

Budget, advantage and disadvantage of incremental budget

advantage and disadvantage of incremental budget

Use of budgetary controls, Use of Budgetary controls Budgetary controls...

Use of Budgetary controls Budgetary controls are used for the following reasons: 1) To state the objectives of the organization as a whole. 2) To reveal the extent by whi

Minimal regret criterion-laplace criterion of rationality, Minimal Regret C...

Minimal Regret Criterion : This method seeks to minimize the maximum regret that would occur from choosing a particular strategy or alternative.  The regret is the opportunit

Describe the method of drawing a break even chart, Describe the method of d...

Describe the method of drawing a break even chart. 1) volume of production/output or sales is plotted on horizontal axis , i. e y - axis . the volume of sales or production ma

Need help with one question, Decide which costs are associated with the ass...

Decide which costs are associated with the assignment of cost for a Job Order Costing System. Select all that apply. cost graphs (Points : 1) Raw materials are used

Determine the internal factors of pricing decision, Determine the Internal ...

Determine the Internal factors of pricing decision 1) Organization factor: pricing decision occur on two level in the organization. Overall price strategy is dealt with by to

Cyclic chains-recurrent state, Cyclic Chains: In Markov Chains the cur...

Cyclic Chains: In Markov Chains the current state of the system depends on all previous states. It is a stochastic process.  Sometimes transition probability matrices are diff

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd