Date : 5 July 1995
Time : 8.30 P.M ( A rainy night )
Place : Nariman Point, Mumbai .
.....!!!! Pistol Sound, all are running.
Don Dawood is Frightening Bijulal ( A big retail merchant)......
1 Year Back.........
Sumbani Brothers, manufacturers of Colour T.V's in mumbai started a new scheme to sell their T.V's on credit.They sold on credit to many retailers all over mumbai. M/S Bijulal & Sons have many retail showrooms and they purchased 2 lakh T.V's.The credit period usually is 60 days and Max 120 days @ 18% interest.
6 months passed and 80% of debts were not recovered.Sumbani brothers disappointed with this situation and approached Dawood Bhai for a solution.
Dawood asked them to transfer the receivables to him and he paid 80% of the value of receivables. Dawood first went to Bijulal and frightened him with his pistol to pay money with interest. This is where the story is running now............
This is known as FACTORING.
FACTORING in a polished language : "Factoring is a financial transaction in which a business sells its accounts receivables (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business."
How Factoring Works ?
1. Seller sells the goods to the buyer
2. Seller transfers the trade debts to the factor
3. Seller informs the buyer to pay the proceeds to the factor
4. Factor after deducting Commission,interest (Front end), Reserve on the value of trade debts, pays the balance to the seller.
5. On due date buyer will pay money to the factor ( Sorry! FORCED to pay to the factor )