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Discounting/

commision

charges

For making immediate payment Factor

charges dicounting charges.This

discount charges are comparable to

bank interest rates in that it is

calculated for the period between the

date of advance payment by the factor

to the client and the date of collectionby the factor from the customer. tHESE

ARE COLLECTED MONTHLY.

For rendering services of collection

and maintenance of sales Ledger factor

charges 0.4to 1% on the invoice value.

THIS SERVICE CHARGES IS COLLECTED

AT THE TIME OF PURCHASE OF

INVOICES BY THE FACTOR.

The cost of forfeiting finance is

always at afixed rate of interest

which is usually included in the face

value of the bills/notes. (ie

Discounting charges mostly at a fixed

rated rate)

Transaction Done mainly on Domestic but also

done on export transaction

Only for export transaction

Instrument Done on the basis of sales Invoices Bill of Exchangeor promissory notes

applicability done on whole turnover Done for particular transaction.

Service Debt collection, customer ledger

maintenance, provide relevent

advisory services to the client

It is only the financial service - No

other services

Other

differences

mainly associated with bok debts

of manufacturingand trading Cosdeals with trade debts

Debts - short term in nature

entire credit risk can be passed

on to the factor

factor is afacilitator

Factor evaluates and invests

No securities created

backed by account receivables

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Securitisation

It is a process through which ill- liquid assets are

transferred into more liquid form of assets and

distributed to a broad range of investors in capital

market.

It is a process of transferring certain financial assets

like receivables on loans, credit card balance,receivables from hire purchase, receivables

underlease etc into securities and marketing those

securities to raise finance.

The process starts with a financial Institution called

originator deciding to go for securitisation. The

originator picks up apool of assets of homogeneous

nature for secritisation (identification process)

The selected assets (loans and other receivables)are

transferred (normally sold )to SPV(or a trust).

Originators gets the full money from SPV. SPV then

converts this assets with the help of merchant bankers

into marketable securities. Securities are sold to

investors and SPV gets reimbursed out of this sale. The

securities issued by SPV are stuctured in such away

that the maturity of these securities will synchronise

with the maturities of securitised loan/recevables.

Redemption and payment of interest and principal on

these securities are facilitated by the collection

received by SPV from Obligors.

Fees received by Merchant bankers

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mainly associated with Financial companies

Deals with loans and receivables

medium or long term in nature

part of the credit risk can be absorbed by the

originator by transferring the assets at a discount.

spv & Merchant bankers are key facilitators

investors merely invest Evaluation and process is done

by SPV and Merchant bank

securities -Pass thru and Pay thru are created

backed by assets or mortgages.