Factoring, Managerial Accounting

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Receivable management is a specialized activity and needs various time and effort on the part of the firm. Collection of receivables frequently poses problems, mainly for small and medium size organizations. Banks do finance receivables although this accommodation is for a restricted period and the seller has to bear the risk whether debtors default on payment.

So as to overcome such problems the firms can allocate credit collection and management to expert organization called factoring organizations.

Factoring is financial and also management support to a firm. During factoring non-productive, inactive assets as book debts or receivables both are allocated to a factor that may be a bank or a financial institution or any other organization that in turn collects receivables from the debtors for a commission. The factoring can be defined as "a business concerning a continuing legal relation between a business and the factor concern as the client, that selling services and goods to trade customers or the customers whereby the factor purchases the clients accounts receivable and in relation for controls the credit expanded to customers and administers the sales ledger".


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