4.40 Factoring:
Management of receivables has been one of the major aspects of working capital management.
Thus, if a firm could contract out the collection of accounts receivable it would be saved from administration of sales ledger, collection of debt and the management of associated risk of bad-debts, etc.
Factoring is a type of financial service which involves an outright sale of the receivables of a firm to a financial institution called the factor which specializes in the management of trade credit. Under a typical factoring arrangement, a factor collects the accounts on the due dates, effects payments to a firm on these dates (irrespective of whether the customers have paid or not) and also assumes the credit risks associated with the collection of the accounts.
4.41 Capital Markets:
Capital markets are financial markets for buying and selling of long-term debt- or equity-backed securities. The capital market and the stock exchange are considered the barometer of an economy.
A key division within the capital markets is between the primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors, often via a mechanism known as underwriting.
The main entities seeking to raise long-term funds on the primary capital markets are governments (which may be municipal, local or national) and business enterprises (companies).
Capital market plays an extremely important role in promoting and sustaining the growth of an economy.
We shall study Capital Markets in depth, in the chapter on Capital Markets