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

Procedure of material acquisition, Procedure of material acquisition A ...

Procedure of material acquisition A stores record is maintained into which the quantity and value of materials received is entered. Issues of materials to production are made b

Explain the methods of pricing, Explain the Methods of pricing The fol...

Explain the Methods of pricing The following methods are used for intra company transfer pricing: 1) Total cost method: transfer is made at absorption cost which is the t

150 to 200 words, solutions for (POS) slow printing of sales tickets and un...

solutions for (POS) slow printing of sales tickets and unpredictable action of cash drawers. when credit approvals delayed the checkout process or when the computer was down, thus

What are the classification and computation of variances, Classification an...

Classification and computation of variances The computation and analysis of variances is the main aim of standard costing. The variance is the difference among the standard pe

Motives for holding cash, The firm's require holding cash may be attributed...

The firm's require holding cash may be attributed to the three motives specified below: The transaction motive The precautionary motive The speculative motive.

Help, Jackson County Senior Services is a nonprofit organization devoted to...

Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Jackson County area. Three serv

Lease accounting, question:lease accounting implicit rate unknown,20%increm...

question:lease accounting implicit rate unknown,20%incremental rate leaseterm 4 years,find implicit rate using trial and error method.i know nothing about trial and error method in

Letter of credit, In the documentary bills the seller faces a lot of risk a...

In the documentary bills the seller faces a lot of risk as the risk of non-acceptance or non-payment of goods. This poses a main risk for the seller. These additional securities in

Hold-up problem or another problem, According to the Philadelphia Inquirer,...

According to the Philadelphia Inquirer, in 2004 the city of Philadelphia planned to spend $14 million to convert the Convention Center into an appropriate venue for the Republican

Managerial accounting, As an MBA Managerial Accounting Student, John has as...

As an MBA Managerial Accounting Student, John has asked you to evaluate the alternatives available and make recommendations as to the best course of action, and present it in a Rep

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