Factoring is an arrangement between the banks and a company in which financial institution buys the book debts of a company and pays the cash to the company against receivables and then collects the amounts from the debtors of the company. Given below are various types of factoring which company can take from a financial institution or bank –
1. Recourse Factoring – Under this type of factoring the bank purchases the receivables on the condition that any loss arising out or bad debts will be borne by the company which has taken factoring.
2. Non- Recourse factoring – Under this type of factoring the bank takes all the risk and bear all the loss in case of debts becoming bad debts.
3. Invoice Discounting – Under this type of factoring the bank provide a advance to the company against the account receivables and in turn charges interest rate from the company for the payment which bank has given to the company.
4. Maturity Factoring – Under this type of factoring bank does not give any advance to the company rather bank collects it from customers and pays to the company either on the date of collection from the customers or on a guaranteed payment date.