Article Title

Theory about factoring service

Authors

Burhan Economy Rexhepi Ek, UbtFollow

Keywords

Factoring service, Kosovo, EU.

Abstract

Factoring is one of the oldest and common methods of trade fi nance over the world with a long historical development. According to historians, Factoring is originated 4,000 years ago in the days of King Hammurabi of Mesopotamia whereby the fi rst literate societies were developed. Although Mesopotamia no longer exists, many of its great contributions to civilization have endured, including Factoring. The fi rst documented-use of factoring was widespread occurred in the American colonies before the revolution to serve for trade. With the abundance of the North American landscape, colonists cultivated and traded commodities like cott on, fur and timber with the Europeans. In briefl y, Factoring is the sale and purchase a receivable with a certain discount rate. However, factoring is not simply one homogenous product because the factors also off er a range of professional fi nancial services that might typically include: (i) Collecting payments from their customers, (ii) Pursuing late payers, (iii) Providing advice to clients on credit management, (iv) protecting the client against bad debts. The diff erence among these defi nitions is how many services to provide by the factors. In a recourse factoring arrangement, the factor has a right to recover the funds from the seller in case of default payments as the seller takes the risk of any bad debt losses himself. The factor charges the seller for maintaining the sales ledger and debt collection services and charges interest on the amount drawn by the client (selling fi rm) for the period. This is the most common type factoring. Recourse factoring is off ered at a lower interest rate since the risk by the factor is low. It’s highly suited for factoring arrangements at high risk markets as well as for factors at the fi rst phase of entrance into the market as they’re lack of experience and meet diffi culties in accessing buyer’s credit- worthiness.

Recommended Citation

Rexhepi, Burhan Economy Ek (2021) "Theory about factoring service," International Journal of Business and Technology: Vol. 9: Iss. 1, Article 26.
Available at: https://knowledgecenter.ubt-uni.net/ijbte/vol9/iss1/26