The types of factoring service vary on the basis of the nature of the agreement between client and factor. Factoring agreement could be any of the following:
- Full Service or Without recourse factoring: Without Recourse means if the debtor fails to repay the amount then it will be the full responsibility of the factor to repay the remaining amount to the client. So, the whole responsibility lies on the shoulders of the factor. this type of factoring is a standard one and is referred as full factoring because the factor also maintains sales ledger account, provides finance, undertake credit investigation, provide consultancy services to the client etc.
- Without Recourse factoring: As the name suggests, under this, the factor does not assume the credit risk and if the debtor fails to pay the amount such debts are automatically assigned back to the client. the client has to take the work of collection by himself.
- Maturity Factoring: In the previous post, we discussed that Factor will pay about 75%-85% of the factoring amount to the client immediately at the time of making assignment of debt, this kind of arrangement is known as advance factoring. But, under this type, the factor does not provide immediate cash payment to the client at the time of assignment of debt. The factor pays cash when he actually receives from the debtor. It is also known as collection factoring.
- Bulk Factoring: Under bulk factoring, the factor first discloses the fact of assignment of debt by the client to the debtor. This type of factoring is useful when he is not fully satisfied with the condition of the client. This type of factoring is also known as ‘Notified Factoring’ or ‘Disclosed Factoring’.
- Undisclosed Factoring: In this type of factoring factor simply provides finance against invoices and does not undertake any other function. all works related to sales ledger management, collection of debt etc. are done by the client himself. the debtor is not at all informed about the factoring agreement and debtors are unaware of the factoring arrangement. it is also known as confidential ‘invoice discounting’ or ‘invoice factoring’.
- Agency Factoring: In this type of factoring the factor and the client share the works between themselves. like, the client would look after sales ledger administration & collection work and factor would provide finance & assume credit risk.
- International Factoring: It is also known as cross border factoring. In domestic factoring, there are three parties namely client, factor, debtor. while in international factoring there are four parties namely exporter (client), the importer (customer), export factor and import factor.
- Limited Factoring: When the factor does not take all the invoices of the client, it is known as limited factoring. the factor discounts only selected invoices on merit basis.
- Buyer Based Factoring: In all the other types of factoring, the factor act on behalf of the Seller. but under this type, the buyer approaches the factor to discount his bills. this type of factoring is available to only credit-worthy buyers. it is also known as ‘Selected Seller Based Factoring’