Factoring and Make whole clause: Difference between pages

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The sale or transfer by a supplier of legal title to accounts receivable (invoices).
''Securities''.


The supplier sells or transfers title to the receivables to a third party known as a factor.
A strong form of protection for lenders/investors in securities, designed to mitigate the adverse effects of call risk for investors.


The arrangement can be either with or without recourse.  
Under a make whole clause the borrower/issuer has to value the cash flows beyond the date of the early call/redemption at the government bond yield.




Factoring is often a convenient - but relatively expensive - form of finance for weaker corporate credits.
This potentially makes it prohibitively expensive for the issuer to take an early redemption.


The supplier sells its invoices, at a discount, to the factor. The factor then becomes responsible for collecting the debt.  
The consequence of a make whole clause for the investor is that they can re-invest the redemption monies in government stock, thus preserving their originally expected cash inflows at lower risk.


A factoring agreement between the factor and a client sets out the terms on which a factoring arrangement is made.


Make whole clauses are similar in their effect to Spens clauses.


As noted above, factoring arrangements can be with or without recourse.
Sometimes known as a make whole ''provision''.
 
Recourse factoring allows the factor to recover from the supplier/borrower any losses caused by bad debts.




== See also ==
== See also ==
* [[Call risk]]
* [[Clause]]
* [[Security]]
* [[Spens clause]]


* [[Factors]]
[[Category:Accounting,_tax_and_regulation]]
* [[Confidential factoring]]
[[Category:Corporate_financial_management]]
* [[Debt factoring]]
* [[Domestic factoring]]
* [[Export factoring]]
* [[Import factoring]]
* [[Internal factoring]]
* [[International factoring]]
* [[Invoice discounting]]
* [[Recourse]]
* [[Securitisation]]

Latest revision as of 15:40, 10 December 2021

Securities.

A strong form of protection for lenders/investors in securities, designed to mitigate the adverse effects of call risk for investors.

Under a make whole clause the borrower/issuer has to value the cash flows beyond the date of the early call/redemption at the government bond yield.


This potentially makes it prohibitively expensive for the issuer to take an early redemption.

The consequence of a make whole clause for the investor is that they can re-invest the redemption monies in government stock, thus preserving their originally expected cash inflows at lower risk.


Make whole clauses are similar in their effect to Spens clauses.

Sometimes known as a make whole provision.


See also