Differences between Factoring and Securitization

While both factoring and securitization involves capitalizing the receivables of the company, however there are many differences between factoring and securitization. Let’s look at some of them –

1. While factoring is arrangement between the banks and a company in which financial institution purchases the book debts of a company and pays the money to the company against receivables whereas Securitization is the process of converting illiquid assets into liquid assets by converting longer duration cash flows into shorter duration cash flows.

2. Under factoring there are two parties that is the bank and the company while under securitization there are many investors involved who invest in the securitized asset.

3. While factoring is done for short term account receivables ranging from 1 month to 6 months whereas securitization is done for long term receivables of the company.

4. While factoring is of many types and can be with or without recourse while securitization is done without recourse.

5. Since factoring involves only bank and the company there is no need for any credit rating while securitization involves many investors and therefore it is necessary to take credit rating before going for securitization of receivables.

2 comments… add one
  • Allan

    excellent

  • Kevin

    Very good post. Simple and to the point. Thank you.

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