In Commerce

In commerce, agents are individuals or businesses authorized to act on behalf of others,
known as principals, to facilitate business transactions. Agents do not take ownership of

goods or services but instead earn a commission or fee for their services. There are various
types of agents in commerce, each serving different roles in the buying and selling process:
Types of Agents in Commerce
1. Brokers:
o Act as intermediaries between buyers and sellers.
o They bring the two parties together and help negotiate terms but do not take
possession of the goods.
o Example: A stockbroker helps investors buy and sell stocks on the stock
market.
2. Factors:
o Agents who handle the sale of goods on behalf of a principal, typically holding
physical possession of the goods.
o They can sell goods, often at a price they determine, to achieve the best terms
for the principal.
o Example: A cotton factor might sell raw cotton on behalf of farmers.
3. Commission Agents:
o These agents are hired to sell goods on behalf of a principal and receive a
commission based on sales.
o Unlike factors, commission agents do not hold physical possession of goods.
o Example: Real estate agents are often commission agents who earn a
percentage of the property sale price.
4. Del Credere Agents:
o They are similar to commission agents but take on additional risk by
guaranteeing the payment from the buyer to the principal.
o In return for this risk, they receive a higher commission.
o Example: An exporter using a del credere agent to sell goods overseas would
be assured of payment even if the buyer defaults.
5. Auctioneers:
o Act as agents who sell goods to the highest bidder in a public auction.
o They charge a commission for their services and facilitate the sale on behalf of
the seller.
o Example: Auctioneers in art galleries sell valuable paintings on behalf of
artists or collectors.
6. Forwarding Agents:
o Specialize in arranging the transportation and shipment of goods from one
place to another on behalf of the principal.
o Example: A freight forwarder organizes the shipping of goods for exporters.
Role and Importance
Agents play a crucial role in commerce by:
 Expanding the reach of businesses (especially in international trade).

 Providing expertise in negotiation and sales.
 Reducing the burden of direct selling for principals.
 Offering specialized services (e.g., logistics, auctioneering, or brokering).
In summary, agents in commerce act as intermediaries who facilitate transactions but do not
own the goods they deal with, earning compensation in various forms (e.g., commissions) for
their work.
Overdraft and factoring are two financial tools businesses use to manage cash flow, but
they serve different purposes and operate in different ways. Here's a comparison of the two:
1. Overdraft
An overdraft is a credit facility offered by banks that allows a business to withdraw more
money than it has in its bank account, up to a pre-agreed limit. It provides businesses with a
short-term solution to cover expenses or manage temporary cash shortages.
Key Features:
 Short-term borrowing: Primarily used to cover short-term cash flow problems, such as
meeting payroll, paying suppliers, or covering unexpected expenses.
 Pre-agreed limit: The bank sets a maximum limit for the overdraft, based on the business’s
creditworthiness.
 Interest: Interest is charged only on the amount of the overdraft used, not the entire limit.
 Flexible repayment: There is no fixed repayment schedule, but businesses are expected to
repay the amount over time.
 Security: Depending on the size of the overdraft, banks may require collateral or personal
guarantees.
Advantages:
 Quick access to funds: The business can access funds immediately when needed.
 Only pay for what you use: Interest is charged on the amount drawn, not on the entire limit.
 Flexible: Businesses can repay the overdraft at their convenience, within the bank’s terms.
Disadvantages:
 Higher interest rates: Overdrafts often have higher interest rates compared to regular loans.
 Can be recalled: Banks can reduce or cancel the overdraft facility with little notice, making it
an uncertain source of finance.
 Short-term solution: Overdrafts are not suitable for long-term financing needs.
2. Factoring
Factoring involves selling a business's accounts receivable (invoices) to a factoring company

(or a financial institution) at a discount in exchange for immediate cash. This helps
businesses improve cash flow without waiting for their customers to pay.
Key Features:
 Invoice selling: The business sells its outstanding invoices to a factor at a discount, typically
70-90% of the invoice value.
 Immediate cash: The factoring company provides upfront cash, which can be used for
business operations.
 Factor's responsibility: The factor assumes responsibility for collecting payment from
customers.
 Discount fee: The factor charges a fee for this service, which reduces the amount of money
the business ultimately receives.
Types of Factoring:
 Recourse factoring: If the customers do not pay, the business is responsible for covering the
unpaid invoices.
 Non-recourse factoring: The factoring company assumes the risk of non-payment, meaning
the business is not liable if the customer defaults.
Advantages:
 Immediate cash flow: Businesses get quick access to cash without waiting for customers to
pay.
 No additional debt: Factoring is not a loan, so the business does not take on additional debt.
 Outsourced collection: The factoring company handles collections, saving the business time
and effort.
Disadvantages:
 Costly: Factoring fees can be high, especially for non-recourse factoring.

 Loss of control: The factor may take over customer communications regarding payment,
which could affect customer relationships.
 Reduced profit: Since invoices are sold at a discount, the business receives less than the full
value of the invoice.
Comparison:
Feature Overdraft Factoring

Type of Finance Short-term credit facility Sale of invoices for immediate cash
Purpose Cover temporary cash shortages Improve cash flow from unpaid invoices
Cost Interest on overdraft amount used Factoring fees (discount on invoices)
Repayment Flexible, depends on the business No repayment, as invoices are sold
Security May require collateral or guarantees No collateral, but the invoices are sold
Risk Business must repay the overdraft May retain liability (recourse factoring)
Impact on Debt Adds to the business’s debt Does not increase debt

In Commerce

Uploaded by

Copyright:

Available Formats

In Commerce

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

In Commerce

Uploaded by

Copyright:

Available Formats

In commerce, agents are individuals or businesses authorized to act on behalf of others,

known as principals, to facilitate business transactions. Agents do not take ownership of

Types of Agents in Commerce

Role and Importance

Agents play a crucial role in commerce by:

 Expanding the reach of businesses (especially in international trade).

Factoring involves selling a business's accounts receivable (invoices) to a factoring company

 Costly: Factoring fees can be high, especially for non-recourse factoring.

Feature Overdraft Factoring

You might also like