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Chemotaxis
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Capillary tube assay for chemotaxis. Motile prokaryotes sense chemicals in their environment and change their motility accordingly. Absent chemicals, movement is completely random. When an attractant or repellent is present, runs become longer and tumbles become less frequent. The result is net movement towards or away from the chemical (i.e., up up or down the chemical gradient). The net movement can be seen in the beaker, where the bacteria accumulate around the origin of the attractant, and away from the origin of the repellent.
Chemotaxis (from chemo- + taxis) is the movement of an organism in response to a chemical stimulus.[1] Somatic cells, bacteria, and other single-cell or multicellular organisms direct their movements according to certain chemicals in their environment. This is important for bacteria to find food (e.g., glucose) by swimming toward the highest concentration of food molecules, or to flee from poisons (e.g., phenol). In multicellular organisms, chemotaxis is critical to early development (e.g., movement of sperm towards the egg during fertilization) and subsequent phases of development (e.g., migration of neurons or lymphocytes) as well as in normal function. In addition, it has been recognized that mechanisms that allow chemotaxis in animals can be subverted during cancer metastasis.
Positive chemotaxis occurs if the movement is toward a higher concentration of the chemical in question; negative chemotaxis if the movement is in the opposite direction. Chemically prompted kinesis (randomly directed or nondirectional) can be called chemokinesis.
Contents
[hide]
1 History of chemotaxis research
2 Chemoattractants and chemorepellents
3 Bacterial chemotaxis—general characteristics
3.1 Behavior
3.2 Signal transduction
3.2.1 Flagellum regulation
3.2.2 Receptor regulation
4 Eukaryotic chemotaxis
4.1 Motility
4.1.1 Chemotaxis related migratory responses
4.2 Receptors
4.2.1 Chemotactic selection
4.3 Chemotactic ligands
4.3.1 Chemotactic range fitting
5 Clinical significance
6 Mathematical models
7 Measurement of chemotaxis
8 Artificial chemotactic systems
9 See also
10 References
11 Further reading
12 External links
History of chemotaxis research[edit]
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Although migration of cells was detected from the early days of the development of microscopy by Leeuwenhoek, a Caltech lecture regarding chemotaxis propounds that 'erudite description of chemotaxis was only first made by T. W. Engelmann (1881) and W. F. Pfeffer (1884) in bacteria, and H. S. Jennings (1906) in ciliates'.[2] The Nobel Prize laureate I. Metchnikoff also contributed to the study of the field during 1882 to 1886, with investigations of the process as an initial step of phagocytosis.[3] The significance of chemotaxis in biology and clinical pathology was widely accepted in the 1930s, and the most fundamental definitions underlying the phenomenon were drafted by this time.[by whom?] The most important aspects in quality control of chemotaxis assays were described by H. Harris in the 1950s.[4] In the 1960s and 1970s, the revolution of modern cell biology and biochemistry provided a series of novel techniques that became available to investigate the migratory responder cells and subcellular fractions responsible for chemotactic activity.[5] The availability of this technology led to the discovery of C5a, a major chemotactic factor involved in acute inflammation. The pioneering works of J. Adler represented a significant turning point in understanding the whole process of intracellular signal transduction of bacteria.[6][non-primary source needed]
Chemoattractants and chemorepellents[edit]
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Chemoattractants and chemorepellents are inorganic or organic substances possessing chemotaxis-inducer effect in motile cells. Effects of chemoattractants are elicited via described or hypothetic chemotaxis receptors, the chemoattractant moiety of a ligand is target cell specific and concentration dependent. Most frequently investigated chemoattractants are formyl peptides and chemokines. Responses to chemorepellents result in axial swimming and they are considered a basic motile phenomena in bacteria. The most frequently investigated chemorepellents are inorganic salts, amino acids, and some chemokines.
Bacterial chemotaxis—general characteristics[edit]
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Some bacteria, such as E. coli, have several flagella per cell (4–10 typically). These can rotate in two ways:
Counter-clockwise rotation aligns the flagella into a single rotating bundle, causing the bacterium to swim in a straight line; and
Clockwise rotation breaks the flagella bundle apart such that each flagellum points in a different direction, causing the bacterium to tumble in place.[citation needed]
The directions of rotation are given for an observer outside the cell looking down the flagella toward the cell.[citation needed]
Behavior[edit]
The overall movement of a bacterium is the result of alternating tumble and swim phases.[citation needed] If one watches a bacterium swimming in a uniform environment, its movement will look like a random walk with relatively straight swims interrupted by random tumbles that reorient the bacterium.[citation needed] Bacteria such as E. coli are unable to choose the direction in which they swim, and are unable to swim in a straight line for more than a few seconds due to rotational diffusion; in other words, bacteria "forget" the direction in which they are going.[citation needed] By repeatedly evaluating their course, and adjusting if they are moving in the wrong direction, bacteria can direct their motion to find favorable locations with high concentrations of attractants (usually food) and avoid repellents (usually poisons).[citation needed]
In the presence of a chemical gradient bacteria will chemotax, or direct their overall motion based on the gradient.[citation needed] If the bacterium senses that it is moving in the correct direction (toward attractant/away from repellent), it will keep swimming in a straight line for a longer time before tumbling; however, if it is moving in the wrong direction, it will tumble sooner and try a new direction at random.[citation needed] In other words, bacteria like E. coli use temporal sensing to decide whether their situation is improving or not, and in this way, find the location with the highest concentration of attractant (usually the source) quite well.[citation needed] Even under very high concentrations, it can still distinguish very small differences in concentration, and fleeing from a repellent works with the same efficiency.[citation needed]
This biased random walk is a result of simply choosing between two methods of random movement; namely tumbling and straight swimming.[7] In fact, chemotactic responses such as forgetting direction and choosing movements resemble the decision-making abilities of higher life-forms with brains that process sensory data.[according to whom?][citation needed]
The helical nature of the individual flagellar filament is critical for this movement to occur, and the protein that makes up the flagellar filament, flagellin, is quite similar among all flagellated bacteria.[citation needed] Vertebrates seem to have taken advantage of this fact by possessing an immune receptor (TLR5) designed to recognize this conserved protein.[citation needed]
As in many instances in biology, there are bacteria that do not follow this rule. Many bacteria, such as Vibrio, are monoflagellated and have a single flagellum at one pole of the cell. Their method of chemotaxis is different. Others possess a single flagellum that is kept inside the cell wall. These bacteria move by spinning the whole cell, which is shaped like a corkscrew.[8][page needed]
Signal transduction[edit]
Chemical gradients are sensed through multiple transmembrane receptors, called methyl-accepting chemotaxis proteins (MCPs), which vary in the molecules that they detect.[citation needed] These receptors may bind attractants or repellents directly or indirectly through interaction with proteins of periplasmatic space.[citation needed] The signals from these receptors are transmitted across the plasma membrane into the cytosol, where Che proteins are activated.[citation needed] The Che proteins alter the tumbling frequency, and alter the receptors.[citation needed]
Flagellum regulation[edit]
The proteins CheW and CheA bind to the receptor. The absence of receptor activation results in autophosphorylation in the histidine kinase, CheA, at a single highly conserved histidine residue.[9][better source needed] CheA, in turn, transfers phosphoryl groups to conserved aspartate residues in the response regulators CheB and CheY; CheA is a histidine kinase and it does not actively transfer the phosphoryl group, rather, the response regulator CheB takes the phosphoryl group from CheA.[citation needed] This mechanism of signal transduction is called a two-component system, and it is a common form of signal transduction in bacteria.[citation needed] CheY induces tumbling by interacting with the flagellar switch protein FliM, inducing a change from counter-clockwise to clockwise rotation of the flagellum. Change in the rotation state of a single flagellum can disrupt the entire flagella bundle and cause a tumble.[citation needed]
Receptor regulation[edit]
CheB, when activated by CheA, acts as a methylesterase, removing methyl groups from glutamate residues on the cytosolic side of the receptor; it works antagonistically with CheR, a methyltransferase, which adds methyl residues to the same glutamate residues.[citation needed] If the level of an attractant remains high, the level of phosphorylation of CheA (and, therefore, CheY and CheB) will remain low, the cell will swim smoothly, and the level of methylation of the MCPs will increase (because CheB-P is not present to demethylate).[citation needed] The MCPs no longer respond to the attractant when they are fully methylated; therefore, even though the level of attractant might remain high, the level of CheA-P (and CheB-P) increases and the cell begins to tumble.[citation needed] The MCPs can be demethylated by CheB-P, and, when this happens, the receptors can once again respond to attractants.[citation needed] The situation is the opposite with regard to repellents: fully methylated MCPs respond best to repellents, while least-methylated MCPs respond worst to repellents.[citation needed] This regulation allows the bacterium to 'remember' chemical concentrations from the recent past, a few seconds, and compare them to those it is currently experiencing, thus 'know' whether it is traveling up or down a gradient.[citation needed] Although the methylation system accounts for the wide range of sensitivity[10][non-primary source needed] that bacteria have to chemical gradients, other mechanisms are involved in increasing the absolute value of the sensitivity on a given background. Well-established examples are the ultra-sensitive response of the motor to the CheY-P signal, and the clustering of chemoreceptors.[11][12] [
Eukaryotic chemotaxis[edit]
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The mechanism that eukaryotic cells employ is quite different from that in bacteria; however, sensing of chemical gradients is still a crucial step in the process.[13][better source needed] Due to their size, prokaryotes cannot detect effective concentration gradients; therefore, these cells scan and evaluate their environment by a constant swimming (consecutive steps of straight swims and tumbles). In contrast, the size of eukaryotic cells allows for the possibility of detecting gradients, which results in a dynamic and polarized distribution of receptors; induction of these receptors by chemoattractants or chemorepellents results in migration towards or away from the chemotactic substance.[citation needed]
Levels of receptors, intracellular signalling pathways and the effector mechanisms all represent diverse, eukaryotic-type components. In eukaryotic unicellular cells, amoeboid movement and cilium or the eukaryotic flagellum are the main effectors (e.g., Amoeba or Tetrahymena).[14][15] Some eukaryotic cells of higher vertebrate origin, such as immune cells also move to where they need to be. Besides immune competent cells (granulocyte, monocyte, lymphocyte) a large group of cells—considered previously to be fixed into tissues—are also motile in special physiological (e.g., mast cell, fibroblast, endothelial cells) or pathological conditions (e.g., metastases).[citation needed] Chemotaxis has high significance in the early phases of embryogenesis as development of germ layers is guided by gradients of signal molecules.[citation needed]
Motility[edit]
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Unlike motility in bacterial chemotaxis, the mechanism by which eukaryotic cells physically move is unclear. There appear to be mechanisms by which an external chemotactic gradient is sensed and turned into an intracellular PIP3 gradient, which results in a gradient and the activation of a signaling pathway, culminating in the polymerisation of actin filaments. The growing distal end of actin filaments develops connections with the internal surface of the plasma membrane via different sets of peptides and results in the formation of anteriorpseudopods and posterior uropods. Cilia of eukaryotic cells can also produce chemotaxis; in this case, it is mainly a Ca2+-dependent induction of the microtubular system of the basal body and the beat of the 9+2 microtubules within cilia. The orchestrated beating of hundreds of cilia is synchronized by a submembranous system built between basal bodies. The details of the signaling pathways are still not totally clear.
Chemotaxis related migratory responses[edit]
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Although chemotaxis is the most frequently studied form of migration there are several other forms of locomotion in the cellular level.
Chemokinesis is also induced by molecules of the liquid phase of the surrounding environment; however, the response elicited is a not vectorial, random taxis. Neither amplitude nor frequency of motion has characteristic, directional components, as this behaviour provides more scanning of the environment than migration between two distinct points.
In haptotaxis the gradient of the chemoattractant is expressed or bound on a surface, in contrast to the classical model of chemotaxis, in which the gradient develops in a soluble fluid. The most common biologically active haptotactic surface is the extracellular matrix (ECM); the presence of bound ligands is responsible for induction of transendothelial migration and angiogenesis.
Necrotaxis embodies a special type of chemotaxis when the chemoattractant molecules are released from necrotic or apoptotic cells. Depending on the chemical character of released substances, necrotaxis can accumulate or repel cells, which underlines the pathophysiological significance of this phenomenon.
Receptors[edit]
In general, eukaryotic cells sense the presence of chemotactic stimuli through the use of 7-transmembrane (or serpentine) heterotrimeric G-protein-coupled receptors, a class representing a significant portion of the genome.[citation needed] Some members of this gene superfamily are used in eyesight (rhodopsins) as well as in olfaction (smelling).[citation needed] The main classes of chemotaxis receptors are triggered by:
formyl peptides - formyl peptide receptors (FPR),
chemokines - chemokine receptors (CCR or CXCR), and
leukotrienes - leukotriene receptors (BLT).[citation needed]
However, induction of a wide set of membrane receptors (e.g., amino acids, insulin, vasoactive peptides) also elicit migration of the cell.[citation needed]
Chemotactic selection[edit]
While some chemotaxis receptors are expressed in the surface membrane with long-term characteristics, as they are determined genetically, others have short-term dynamics, as they are assembled ad hoc in the presence of the ligand.[citation needed] The diverse features of the chemotaxis receptors and ligands allows for the possibility of selecting chemotactic responder cells with a simple chemotaxis assay.[citation needed] By chemotactic selection, we can determine whether a still-uncharacterized molecule acts via the long- or the short-term receptor pathway.[citation needed] The term chemotactic selection is also used to designate a technique that separates eukaryotic or prokaryotic cells according to their chemotactic responsiveness to selector ligands.[16][non-primary source needed]
Chemotactic ligands[edit]
The number of molecules capable of eliciting chemotactic responses is relatively high, and we can distinguish primary and secondary chemotactic molecules.[citation needed] The main groups of the primary ligands are as follows:
Formyl peptides are di-, tri-, tetrapeptides of bacterial origin, formylated on the N-terminus of the peptide.[citation needed] They are released from bacteria in vivo or after decomposition of the cell[ a typical member of this group is the N-formylmethionyl-leucyl-phenylalanine (abbreviated fMLF or fMLP).[citation needed] Bacterial fMLF is a key component of inflammation has characteristic chemoattractant effects in neutrophil granulocytes and monocytes.[citation needed] The chemotactic factor ligands and receptors related to formyl peptides are summarized in the related article, Formyl peptide receptors.
Complement 3a (C3a) and complement 5a (C5a) are intermediate products of the complement cascade.[citation needed] Their synthesis is joined to the three alternative pathways (classical, lectin-dependent, and alternative) of complement activation by a convertase enzyme.[citation needed] The main target cells of these derivatives are neutrophil granulocytes and monocytes as well.[citation needed]
Chemokines belong to a special class of cytokines; not only do their groups (C, CC, CXC, CX3C chemokines) represent structurally related molecules with a special arrangement of disulfide bridges but also their target cell specificity is diverse.[citation needed] CC chemokines act on monocytes (e.g., RANTES), and CXC chemokines are neutrophil granulocyte-specific (e.g., IL-8).[citation needed] Investigations of the three-dimensional structures of chemokines provided evidence that a characteristic composition of beta-sheets and an alpha helix provides expression of sequences required for interaction with the chemokine receptors.[citation needed] Formation of dimers and their increased biological activity was demonstrated by crystallography of several chemokines, e.g. IL-8.[citation needed]
Metabolites of polyunsaturated fatty acids
Leukotrienes are eicosanoid lipid mediators made by the metabolism of arachidonic acid by ALOX5 (also termed 5-lipoxygenase). Their most prominent member with chemotactic factor activity is leukotriene B4, which elicits adhesion, chemotaxis, and aggregation of leukocytes. The chemoattractant action of LTB4 is induced via either of two G protein–coupled receptors, BLT1 and BLT2, which are highly expressed in cells involved in inflammation and allergy.[17]
The family of 5-Hydroxyicosatetraenoic acid eicosanoids are arachidonic acid metabolites also formed by ALOX5. Three members of the family form naturally and have prominent chemotactic activity. These, listed in order of decreasing potency, are: 5-oxo-eicosatetraenoic acid, 5-oxo-15-hydroxy-eicosatetraenoic acid, and 5-Hydroxyeicosatetraenoic acid. This family of agonists stimulates chemotactic responses in human eosinophils, neutrophils, and monocytes by binding to the Oxoeicosanoid receptor 1, which like the receptors for leukotriene B4, is a G protein-coupled receptor.[17] Aside from the skin, neutrophils are the body's first line of defense against bacterial infections. After leaving nearby blood vessels, these cells recognize chemicals produced by bacteria in a cut or scratch and migrate "toward the smell".
5-hydroxyeicosatrieonic acid and 5-oxoeicosatrienoic acid are metabolites of Mead acid (5Z,8Z,11Z-eicosatrirenoid acid); they stimulate leukocyte chemotaxis through the oxoeicosanoid receptor 1[18] with 5-oxoeicosatrienoic acid being as potent as its arachidonic acid-derived analog, 5-oxo-eicosatetraenoic acid, in stimulating human blood eosinophil and neutrophil chemotaxis.[17]
12-Hydroxyeicosatetraenoic acid is an eicosanoid metabolite of arachidonic acid made by ALOX12 which stimulates leukocyte chemotaxis through the leukotriene B4 receptor, BLT2.[17]
Prostaglandin D2 is an eicosanoid metabolite of arachidononic acid made by cyclooxygenase 1 or cyclooxygenase 2 that stimulates chemotaxis through the Prostaglandin DP2 receptor. It elicits chemotactic responses in eosinophils, basophils, and T helper cells of the Th2 subtype.[19][non-primary source needed]
12-Hydroxyheptadecatrienoic acid is a non-eicosanoid metabolite of arachidonic acid made by cyclooxygenase 1 or cyclooxygenase 2 that stimulates leukocyte chemataxis though the leukotriene B4 receptor, BLT2.[20][non-primary source needed]
15-oxo-eicosatetraenoic acid is an eicosanoid metabolite of arachidonic acid made my ALOX15; it has weak chemotactic activity for human monocytes (sees 15-Hydroxyeicosatetraenoic acid#15-oxo-ETE).[21][non-primary source needed] The receptor or other mechanism by which this metabolite stimulates chemotaxis has not been elucidated.
Chemotactic range fitting[edit]
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Chemotactic responses elicited by the ligand-receptor interactions are, in general, distinguished upon the optimal effective concentration(s) of the ligand. Nevertheless, correlation of the amplitude elicited and ratio of the responder cells compared to the total number are also characteristic features of the chemotactic signaling. Investigations of ligand families (e.g., amino acids or oligo peptides) proved that there is a fitting of ranges (amplitudes; number of responder cells) and chemotactic activities: Chemoattractant moiety is accompanied by wide ranges, whereas chemorepellent character by narrow ranges.
Clinical significance[edit]
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A changed migratory potential of cells has relatively high importance in the development of several clinical symptoms and syndromes. Altered chemotactic activity of extracellular (e.g., Escherichia coli) or intracellular (e.g., Listeria monocytogenes) pathogens itself represents a significant clinical target. Modification of endogenous chemotactic ability of these microorganisms by pharmaceutical agents can decrease or inhibit the ratio of infections or spreading of infectious diseases. Apart from infections, there are some other diseases wherein impaired chemotaxis is the primary etiological factor, as in Chédiak–Higashi syndrome, where giant intracellular vesicles inhibit normal migration of cells.
Chemotaxis in diseases[citation needed]
Type of disease
Chemotaxis increased
Chemotaxis decreased
Infections inflammations AIDS, Brucellosis
Chemotaxis results the disease — Chédiak–Higashi syndrome, Kartagener syndrome
Chemotaxis is affected atherosclerosis, arthritis, periodontitis, psoriasis, reperfusion injury, metastatic tumors multiple sclerosis, Hodgkin disease, male infertility
Intoxications asbestos, benzpyrene Hg and Cr salts, ozone
Mathematical models[edit]
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Several mathematical models of chemotaxis were developed depending on the type of
migration (e.g., basic differences of bacterial swimming, movement of unicellular eukaryotes with cilia/flagellum and amoeboid migration)
physico-chemical characteristics of the chemicals (e.g., diffusion) working as ligands
biological characteristics of the ligands (attractant, neutral, and repellent molecules)
assay systems applied to evaluate chemotaxis (see incubation times, development, and stability of concentration gradients)
other environmental effects possessing direct or indirect influence on the migration (lighting, temperature, magnetic fields, etc.)
Although interactions of the factors listed above make the behavior of the solutions of mathematical models of chemotaxis rather complex, it is possible to describe the basic phenomenon of chemotaxis-driven motion in a straightforward way. Indeed, let us denote with φ {\displaystyle \varphi } the spatially non-uniform concentration of the chemo-attractant and with ∇ φ {\displaystyle \nabla \varphi } its gradient. Then the chemotactic cellular flow (also called current) J {\displaystyle J} that is generated by the chemotaxis is linked to the above gradient by the law: J = χ C ∇ φ {\displaystyle J=\chi C\nabla \varphi } , where C {\displaystyle C} is the spatial density of the cells and χ {\displaystyle \chi } is the so-called ’Chemotactic coefficient’. However, note that in many cases χ {\displaystyle \chi } is not constant: It is, instead, a decreasing function of the concentration of the chemo-attractant φ {\displaystyle \varphi } : χ ( φ ) {\displaystyle \chi (\varphi )} .
Spatial ecology of soil microorganisms is a function of their chemotactic sensitivities towards substrate and fellow organisms.[22][non-primary source needed] The chemotactic behavior of the bacteria was proven to lead to non-trivial population patterns even in the absence of environmental heterogeneities. The presence of structural pore scale heterogeneities has an extra impact on the emerging bacterial patterns.
Measurement of chemotaxis[edit]
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Main article: Chemotaxis assay
A wide range of techniques is available to evaluate chemotactic activity of cells or the chemoattractant and chemorepellent character of ligands. The basic requirements of the measurement are as follows:
concentration gradients can develop relatively quickly and persist for a long time in the system
chemotactic and chemokinetic activities are distinguished
migration of cells is free toward and away on the axis of the concentration gradient
detected responses are the results of active migration of cells
Despite the fact that an ideal chemotaxis assay is still not available, there are several protocols and pieces of equipment that offer good correspondence with the conditions described above. The most commonly used are summarised in the table below:
Type of assay
Agar-plate assays
Two-chamber assays
Others
Examples
PP-chamber
Boyden chamber
Zigmond chamber
Dunn chambers
Multi-well chambers
Capillary techniques
T-maze technique
Opalescence technique
Orientation assays
Artificial chemotactic systems[edit]
Chemical robots that use artificial chemotaxis to navigate autonomously have been designed. Applications include targeted delivery of drugs in the body.[23]
See also[edit]
McCutcheon index
Tropism
Durotaxis
Haptotaxis
Mechanotaxis
Plithotaxis
References[edit]
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Jump up ^ Laszlo Kohidai (1999). "Chemotaxis: the proper physiological response to evaluate phylogeny of signal molecules". Acta Biol Hung. 50 (4): 375–94. PMID 10735174.
Jump up ^ Laszlo Kohidai and Gyorgy Csaba (1988). "Chemotaxis and chemotactic selection induced with cytokines (IL-8, RANTES and TNF alpha) in the unicellular Tetrahymena pyriformis". Cytokine. 10 (7): 481–6. doi:10.1006/cyto.1997.0328. PMID 9702410. [non-primary source needed]
^ Jump up to: a b c d Powell WS, Rokach J (2015). "Biosynthesis, biological effects, and receptors of hydroxyeicosatetraenoic acids (HETEs) and oxoeicosatetraenoic acids (oxo-ETEs) derived from arachidonic acid". Biochimica et Biophysica Acta. 1851 (4): 340–55. doi:10.1016/j.bbalip.2014.10.008. PMID 25449650. Retrieved March 23, 2017.
Jump up ^ Powell WS, Rokach J (2013). "The eosinophil chemoattractant 5-oxo-ETE and the OXE receptor". Prog. Lipid Res. 52 (4; October): 651–65. doi:10.1016/j.plipres.2013.09.001. Retrieved March 23, 2017.
Jump up ^ Matsuoka T, Narumiya S (2007). "Prostaglandin receptor signaling in disease". The Scientific World Journal. 7: 1329–47. doi:10.1100/tsw.2007.182. PMID 17767353. [non-primary source needed]
Jump up ^ Yokomizo T (2015). "Two distinct leukotriene B4 receptors, BLT1 and BLT2". Journal of Biochemistry. 157 (2): 65–71. doi:10.1093/jb/mvu078. PMID 25480980. [non-primary source needed]
Jump up ^ Sozzani, S; Zhou, D; Locati, M; Bernasconi, S; Luini, W; Mantovani, A; O'Flaherty, J. T. (1996). "Stimulating properties of 5-oxo-eicosanoids for human monocytes: Synergism with monocyte chemotactic protein-1 and -3". Journal of Immunology. 157 (10): 4664–71. PMID 8906847. [non-primary source needed]
Jump up ^ Gharasoo, Mehdi; Centler, Florian; Fetzer, Ingo; Thullner, Martin (2014). "How the chemotactic characteristics of bacteria can determine their population patterns". Soil Biology and Biochemistry. 69: 346. doi:10.1016/j.soilbio.2013.11.019. [non-primary source needed]
Jump up ^ Lagzi, István (2013). "Chemical Robotics—Chemotactic Drug Carriers". Central European Journal of Medicine. 8 (4): 377–382. doi:10.2478/s11536-012-0130-9.
Further reading[edit]
Alberts, Bruce; Johnson, Alexander; Lewis, Julian; Walter, Peter; Raff, Martin C. (2002). "Bacterial Chemotaxis Depends on a Two-Component Signaling Pathway Activated by Histidine-Kinase-associated Receptors". Molecular Biology of the Cell. Taylor & Francis Group. ISBN 9780815340690. Retrieved 18 September 2017.
Bagorda, A.; Parent, C. A. (6 August 2008). "Eukaryotic chemotaxis at a glance". Journal of Cell Science. 121 (16): 2621–2624. doi:10.1242/jcs.018077.
Berg, Howard C. (1993). Random walks in biology (Expanded, rev. ed.). Princeton, NJ: Princeton Univ. Press. ISBN 9780691000640.
Berg, Howard C. (2003). E. coli in motion. New York: Springer. ISBN 9780387008882.
Dusenbery, David B. (2009). Living at micro scale : the unexpected physics of being small. Cambridge, Mass.: Harvard University Press. ISBN 9780674031166.
Eisenbach, Michael (2004). Lengeler, Joseph W., ed. Chemotaxis. London: Imperial College Press. ISBN 9781860944130.
Eisenbach, Michael (December 2011). "Bacterial Chemotaxis". eLS. doi:10.1002/9780470015902.a0001251.pub3.
Hazelbauer, Gerald L. (13 October 2012). "Bacterial Chemotaxis: The Early Years of Molecular Studies". Annual Review of Microbiology. 66 (1): 285–303. doi:10.1146/annurev-micro-092611-150120. PMC 3989901  .
Jin, Tian; Hereld, Dale (2016). Chemotaxis: Methods and Protocols. Humana Press. ISBN 9781493934805.
L. D., Miller; M. H., Russell; G., Alexandre (2009). "Diversity in bacterial chemotactic responses and niche adaptation". Advances in Applied Microbiology. 66: 53–75. doi:10.1016/S0065-2164(08)00803-4.
Rao CV, Kirby JR & Arkin AP (2004). "Design and Diversity in Bacterial Chemotaxis: A Comparative Study in Escherichia coli and Bacillus subtilis". PLoS Biol. 2 (2): e49. doi:10.1371/journal.pbio.0020049.
Williams, Ann H. (20 December 2010). "Chemotaxis on the Move – Active Learning Teaching Tool". Journal of Microbiology & Biology Education. 11 (2): 177–178. doi:10.1128/jmbe.v11i2.216. PMC 3577161  .
External links[edit]
Wikibooks has more on the topic of: Chemotaxis
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Factoring (finance)
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Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount.[1][2][3][4] A business will sometimes factor its receivable assets to meet its present and immediate cash needs.[5][6] Forfaiting is a factoring arrangement used in international trade finance by exporters who wish to sell their receivables to a forfaiter.[7] Factoring is commonly referred to as accounts receivable factoring, invoice factoring, and sometimes accounts receivable financing. Accounts receivable financing is a term more accurately used to describe a form of asset based lending against accounts receivable.[8] The Commercial Finance Association is the leading trade association of the asset-based lending and factoring industries.[9]
Factoring is not the same as invoice discounting (which is called an assignment of accounts receivable in American accounting – as propagated by FASB within GAAP).[10][2] Factoring is the sale of receivables, whereas invoice discounting ("assignment of accounts receivable" in American accounting) is a borrowing that involves the use of the accounts receivable assets as collateral for the loan.[2][11] However, in some other markets, such as the UK, invoice discounting is considered to be a form of factoring, involving the "assignment of receivables", that is included in official factoring statistics.[12] It is therefore also not considered to be borrowing in the UK. In the UK the arrangement is usually confidential in that the debtor is not notified of the assignment of the receivable and the seller of the receivable collects the debt on behalf of the factor. In the UK, the main difference between factoring and invoice discounting is confidentiality.[13] Scots law differs from that of the rest of the UK, in that notification to the account debtor is required for the assignment to take place. The Scottish Law Commission is[when?] reviewing this position and seeks to propose reform by the end of 2017.[14]
Contents
[hide]
1 Overview
2 Rationale
3 Process
4 Accounts receivable discounting
5 Common factoring terms
5.1 Discount rate or factoring fee
5.2 Advance rate
5.3 Reserve account
5.4 Long-term contracts and minimums
5.5 Spot factoring
5.6 Notification vs. non-notification
6 Treatment under GAAP
7 History
8 Modern forms
9 Specialized factoring
9.1 Real estate
9.2 Medical factoring
9.3 Construction
9.4 Trucking
10 Invoice payers (debtors)
11 Risks
12 Reverse factoring
13 See also
14 References
Overview[edit]
There are three parties directly involved: the factor who purchases the receivable, the one who sells the receivable, and the debtor who has a financial liability that requires him or her to make a payment to the owner of the invoice.[2][3] The receivable, usually associated with an invoice for work performed or goods sold, is essentially a financial asset that gives the owner of the receivable the legal right to collect money from the debtor whose financial liability directly corresponds to the receivable asset.[5][3] The seller sells the receivables at a discount to the third party, the specialized financial organization (aka the factor) to obtain cash.[2][5][3] This process is sometimes used in manufacturing industries when the immediate need for raw material outstrips their available cash and ability to purchase "on account".[15] Both invoice discounting and factoring are used by B2B companies to ensure they have the immediate cash flow necessary to meet their current and immediate obligations.[6][3] Invoice factoring is not a relevant financing option for retail or B2C companies because they generally do not have business or commercial clients, a necessary condition for factoring.
The sale of the receivable transfers ownership of the receivable to the factor, indicating the factor obtains all of the rights associated with the receivables.[2][3] Accordingly, the receivable becomes the factor's asset, and the factor obtains the right to receive the payments made by the debtor for the invoice amount, and is free to pledge or exchange the receivable asset without unreasonable constraints or restrictions.[2][3] Usually, the account debtor is notified of the sale of the receivable, and the factor bills the debtor and makes all collections; however, non-notification factoring, where the client (seller) collects the accounts sold to the factor, as agent of the factor, also occurs. The arrangement is usually confidential in that the debtor is not notified of the assignment of the receivable and the seller of the receivable collects the debt on behalf of the factor.[13] If the factoring transfers the receivable "without recourse", the factor (purchaser of the receivable) must bear the loss if the account debtor does not pay the invoice amount.[2] If the factoring transfers the receivable "with recourse", the factor has the right to collect the unpaid invoice amount from the transferor (seller).[2] However, any merchandise returns that may diminish the invoice amount that is collectible from the accounts receivable are typically the responsibility of the seller,[2] and the factor will typically hold back paying the seller for a portion of the receivable being sold (the "factor's holdback receivable") in order to cover the merchandise returns associated with the factored receivables until the privilege to return the merchandise expires.[16]
There are four principal parts to the factoring transaction, all of which are recorded separately by an accountant who is responsible for recording the factoring transaction:
the "fee" paid to the factor,
the Interest Expense paid to the factor for the advance of money,
the "bad debt expense" associated with portion of the receivables that the seller expects will remain unpaid and uncollectable,
the "factor's holdback receivable" amount to cover merchandise returns, and (e) any additional "loss" or "gain" the seller must attribute to the sale of the receivables.[2][3] Sometimes the factor's charges paid by the seller (the factor's "client") covers a discount fee, additional credit risk the factor must assume, and other services provided.[17] The factor's overall profit is the difference between the price it paid for the invoice and the money received from the debtor, less the amount lost due to non-payment.[2][3]
Rationale[edit]
Factoring is a method used by some firms to obtain cash. Certain companies factor accounts when the available cash balance held by the firm is insufficient to meet current obligations and accommodate its other cash needs, such as new orders or contracts; in other industries, however, such as textiles or apparel, for example, financially sound companies factor their accounts simply because this is the historic method of financing. The use of factoring to obtain the cash needed to accommodate a firm's immediate cash needs will allow the firm to maintain a smaller ongoing cash balance. By reducing the size of its cash balances, more money is made available for investment in the firm's growth.
Debt factoring is also used as a financial instrument to provide better cash flow control especially if a company currently has a lot of accounts receivables with different credit terms to manage. A company sells its invoices at a discount to their face value when it calculates that it will be better off using the proceeds to bolster its own growth than it would be by effectively functioning as its "customer's bank."[18] Accordingly, factoring occurs when the rate of return on the proceeds invested in production exceed the costs associated with factoring the receivables. Therefore, the trade-off between the return the firm earns on investment in production and the cost of utilizing a factor is crucial in determining both the extent factoring is used and the quantity of cash the firm holds on hand.
Many businesses have cash flow that varies. It might be relatively large in one period, and relatively small in another period. Because of this, businesses find it necessary to both maintain a cash balance on hand, and to use such methods as factoring, in order to enable them to cover their short term cash needs in those periods in which these needs exceed the cash flow. Each business must then decide how much it wants to depend on factoring to cover short falls in cash, and how large a cash balance it wants to maintain in order to ensure it has enough cash on hand during periods of low cash flow.
Generally, the variability in the cash flow will determine the size of the cash balance a business will tend to hold as well as the extent it may have to depend on such financial mechanisms as factoring. Cash flow variability is directly related to two factors:
The extent cash flow can change, and
The length of time cash flow can remain at a below average level.
If cash flow can decrease drastically, the business will find it needs large amounts of cash from either existing cash balances or from a factor to cover its obligations during this period of time. Likewise, the longer a relatively low cash flow can last, the more cash is needed from another source (cash balances or a factor) to cover its obligations during this time. As indicated, the business must balance the opportunity cost of losing a return on the cash that it could otherwise invest, against the costs associated with the use of factoring.
The cash balance a business holds is essentially a demand for transactions money. As stated, the size of the cash balance the firm decides to hold is directly related to its unwillingness to pay the costs necessary to use a factor to finance its short term cash needs. The problem faced by the business in deciding the size of the cash balance it wants to maintain on hand is similar to the decision it faces when it decides how much physical inventory it should maintain. In this situation, the business must balance the cost of obtaining cash proceeds from a factor against the opportunity cost of the losing the Rate of Return it earns on investment within its business.[19] The solution to the problem is:
C B = i ∗ n C F ( 2 ∗ r ) {\displaystyle CB={\sqrt {\frac {i*nCF}{(2*r)}}}} [20]
where
C B {\displaystyle CB} is the cash balance
n C F {\displaystyle nCF} is the average negative cash flow in a given period
i {\displaystyle i} is the [discount rate] that cover the factoring costs
r {\displaystyle r} is the rate of return on the firm's assets.[21]
Today factoring's rationale still includes the financial task of advancing funds to smaller rapidly growing firms who sell to larger more credit-worthy organizations. While almost never taking possession of the goods sold, factors offer various combinations of money and supportive services when advancing funds.
Factors often provide their clients four key services: information on the creditworthiness of their prospective customers domestic and international, and, in nonrecourse factoring, acceptance of the credit risk for "approved" accounts; maintain the history of payments by customers (i.e., accounts receivable ledger); daily management reports on collections; and, make the actual collection calls. The outsourced credit function both extends the small firms effective addressable marketplace and insulates it from the survival-threatening destructive impact of a bankruptcy or financial difficulty of a major customer. A second key service is the operation of the accounts receivable function. The services eliminate the need and cost for permanent skilled staff found within large firms. Although today even they are outsourcing such back-office functions. More importantly, the services insure the entrepreneurs and owners against a major source of a liquidity crises and their equity.
Process[edit]
The factoring process can be broken up into two parts: the initial account setup and ongoing funding. Setting up a factoring account typically takes one to two weeks and involves submitting an application, a list of clients, an accounts receivable aging report and a sample invoice. The approval process involves detailed underwriting, during which time the factoring company can ask for additional documents, such as documents of incorporation, financials, and banks statements. If approved, the business will be set up with a maximum credit line from which they can draw. In the case of notification factoring, the arrangement is not confidential and approval is contingent upon successful notification; a process by which factoring companies send the business's client or account debtor a Notice of Assignment. The Notice of Assignment serves to
inform debtors that a factoring company is managing all of the business's receivables,
stake a claim on the financial rights for the receivables factored, and
update the payment address – usually a bank lock box.
Once the account is set up, the business is ready to start funding invoices. Invoices are still approved on an individual basis, but most invoices can be funded in a business day or two, as long as they meet the factor’s criteria. Receivables are funded in two parts. The first part is the "advance" and covers 80% to 85% of the invoice value. This is deposited directly to the business's bank account. The remaining 15% to 20% is rebated, less the factoring fees, as soon as the invoice is paid in full to the factoring company.
Accounts receivable discounting[edit]
Non-recourse factoring is not a loan.[17][2] When a lender decides to extend credit to a company based on assets, cash flows, and credit history, the borrower must recognize a liability to the lender, and the lender recognizes the borrower's promise to repay the loan as an asset.[17][2] Factoring without recourse is a sale of a financial asset (the receivable), in which the factor assumes ownership of the asset and all of the risks associated with it, and the seller relinquishes any title to the asset sold.[17][2] An example of factoring is the credit card. Factoring is like a credit card where the bank (factor) is buying the debt of the customer without recourse to the seller; if the buyer doesn't pay the amount to the seller the bank cannot claim the money from the seller or the merchant, just as the bank in this case can only claim the money from the debt issuer.[22] Factoring is different from invoice discounting, which usually doesn't imply informing the debt issuer about the assignment of debt, whereas in the case of factoring the debt issuer is usually notified in what is known as notification factoring. One more difference between the factoring and invoice discounting is that in case of factoring the seller assigns all receivables of a certain buyer(s) to the factor whereas in invoice discounting the borrower (the seller) assigns a receivable balance, not specific invoices. A factor is therefore more concerned with the credit-worthiness of the company's customers.[5][3] The factoring transaction is often structured as a purchase of a financial asset, namely the accounts receivable. A non-recourse factor assumes the "credit risk" that an account will not collect due solely to the financial inability of account debtor to pay. In the United States, if the factor does not assume the credit risk on the purchased accounts, in most cases a court will recharacterize the transaction as a secured loan.
When a company decides to factors account receivables invoices to a principles factors or broker, it needs to understands the risks and rewards involved with factoring. Amount of funding can vary depending on the specific accounts receivables, debtor and industry that factoring occurs in. Factors can limit and restrict funding in such occasions where the debtor is found not credit worthy, or the invoice amount represents too big of a portion of the business' annual income.[23] Another area of concern is when the cost of invoice factoring is calculated. It's a compound of an administration charge and interest earned overtime as the debtor takes time to repay the original invoice. Not all factoring companies charge interest over the time it takes to collect from a debtor, in this case only the administration charge needs to be taken into account although this type of facility is comparatively rare. There are major industries which stand out in the factoring industry which are:
1. Distribution 2. Retail 3. Manufacturing 4. Transportation 5. Services 6. Construction
However, most businesses can apply invoice factoring successfully to their funding model.
Common factoring terms[edit]
Discount rate or factoring fee[edit]
The discount rate is the fee a factoring company charges to provide the factoring service. Since a formal factoring transaction involves the outright purchase of the invoice, the discount rate is typically stated as a percentage of the face value of the invoices. For instance, a factoring company may charge 5% for an invoice due in 45 days. In contrast, companies that do accounts receivable financing may charge per week or per month. Thus, an invoice financing company that charges 1% per week would result in a discount rate of 6-7% for the same invoice.
Advance rate[edit]
The advance rate is the percentage of an invoice that is paid out by the factoring company upfront. The difference between the face value of the invoice and the advance rates serves to protect factors against any losses and to ensure coverage for their fees. Once the invoice is paid, the factor gives the difference between the face value, advance amount and fees back to the business in the form of a factoring rebate.[24]
Reserve account[edit]
Whereas the difference between the invoice face value and the advance serves as a reserve for a specific invoice, many factors also hold an ongoing reserve account which serves to further reduce the risk for the factoring company. This reserve account is typically 10-15% of the seller's credit line, but not all factoring companies hold reserve accounts.[25]
Long-term contracts and minimums[edit]
While factoring fees and terms range widely, many factoring companies will have monthly minimums and require a long-term contract as a measure to guarantee a profitable relationship. Although shorter contract periods are now becoming more common, contracts and monthly minimums are typical with "whole ledger" factoring, which entails factoring all of a company's invoices or all of the company's invoices from a particular debtor.
Spot factoring[edit]
Spot factoring, or single invoice discounting, is an alternative to "whole ledger" and allows a company to factor a single invoice. The added flexibility for the business, and lack of predictable volume and monthly minimums for factoring providers means that spot factoring transactions usually carry a cost premium.
Notification vs. non-notification[edit]
Factoring has traditionally operated under a mandatory notification arrangement.[26] This involves the factoring company notifying the seller's clients about the factoring relationship and requiring future payments to be made to the factoring company. Today, many factoring companies also offer a non-notification option that allows sellers to advance their invoices without involving a third party.
Treatment under GAAP[edit]
In the United States, under the Generally Accepted Accounting Principles (GAAP), receivables are considered "sold", under FASB ASC 860-10 (or under Statement of Financial Accounting Standards No. 140, paragraph 112), when the buyer has "no recourse".[27] Moreover, to treat the transaction as a sale under GAAP, the seller's monetary liability under any "recourse" provision must be readily estimated at the time of the sale. Otherwise, the financial transaction is treated as a secured loan, with the receivables used as collateral.
When a nonrecourse transaction takes place, the accounts receivable balance is removed from the statement of financial position. The corresponding debits include the expense recorded on the income statement and the proceeds received from the factor.[28]
History[edit]
Factoring's origins lie in the financing of trade, particularly international trade. It is said[by whom?] that factoring originated with ancient Mesopotamian culture, with rules of factoring preserved in the Code of Hammurabi.[29]
Factoring as a fact of business life was underway in England prior to 1400, and it came to America with the Pilgrims, around 1620.[30] It appears to be closely related to early merchant banking activities. The latter however evolved by extension to non-trade related financing such as sovereign debt.[31] Like all financial instruments, factoring evolved over centuries. This was driven by changes in the organization of companies; technology, particularly air travel and non-face-to-face communications technologies starting with the telegraph, followed by the telephone and then computers. These also drove and were driven by modifications of the common law framework in England and the United States.[32]
Governments were latecomers to the facilitation of trade financed by factors. English common law originally held that unless the debtor was notified, the assignment between the seller of invoices and the factor was not valid. The Canadian Federal Government legislation governing the assignment of moneys owed by it still reflects this stance as does provincial government legislation modelled after it. As late as the current century,[when?] the courts have heard arguments that without notification of the debtor the assignment was not valid. In the United States, by 1949 the majority of state governments had adopted a rule that the debtor did not have to be notified, thus opening up the possibility of non-notification factoring arrangements.[33]
Originally the industry took physical possession of the goods, provided cash advances to the producer, financed the credit extended to the buyer and insured the credit strength of the buyer.[34] In England the control over the trade thus obtained resulted in an Act of Parliament in 1696 to mitigate the monopoly power of the factors. With the development of larger firms who built their own sales forces, distribution channels, and knowledge of the financial strength of their customers, the needs for factoring services were reshaped and the industry became more specialized.
By the twentieth century in the United States factoring was still the predominant form of financing working capital for the then-high-growth-rate textile industry. In part this occurred because of the structure of the US banking system with its myriad of small banks and consequent limitations on the amount that could be advanced prudently by any one of them to a firm.[35] In Canada, with its national banks the limitations were far less restrictive and thus factoring did not develop as widely as in the US. Even then, factoring also became the dominant form of financing in the Canadian textile industry.
By the first decade of the 21st century, a basic public policy rationale for factoring remains that the product is well-suited to the demands of innovative, rapidly growing firms critical to economic growth.[36] A second public policy rationale is allowing fundamentally good business to be spared the costly, time-consuming trials and tribulations of bankruptcy protection for suppliers, employees and customers or to provide a source of funds during the process of restructuring the firm so that it can survive and grow.
Modern forms[edit]
In the latter half of the twentieth century the introduction of computers eased the accounting burdens of factors and then small firms. The same occurred for their ability to obtain information about debtor's creditworthiness. Introduction of the Internet and the web has accelerated the process while reducing costs. Today credit information and insurance coverage are instantly available online. The web has also made it possible for factors and their clients to collaborate in real time on collections. Acceptance of signed documents provided by facsimile as being legally binding has eliminated the need for physical delivery of "originals", thereby reducing time delays for entrepreneurs.
Traditionally, factoring has been a relationship driven business and factoring transactions have been largely manual and frequently involving a face to-face component as part of the relationship building process or due-diligence phase. This is especially true for small business factoring, in which the factoring companies tend to be locally or regionally focused. The geographic focus helps them better mitigate risks that because of their smaller scale, they otherwise couldn’t afford to take.[37]
To make the arrangement economically profitable, most factoring companies have revenue minimums (e.g. at least $500,000 in annual revenue) and require annual contracts and monthly minimums. More recently, several online factoring companies have emerged, leveraging aggregation, analytics, automation to deliver the benefits of factoring with the convenience and ease afforded by the internet.[38] Some companies use technology to automate some of the risk and back-office aspects of factoring and provide the service via a modern web interface for additional convenience. This enables them to serve a broader range of small businesses with significantly lower revenue requirements without the need for monthly minimums and long-term contracts.[39] Many of these companies have direct software integrations with software programs such as Quickbooks, allowing businesses to immediately receive funding without an application.
The emergence of these modern forms has not been without controversy. Critics accurately point out that none of these new players have experienced a complete credit cycle and thus, their underwriting models have not been market tested by an economic contraction. What's more, some of these new models rely on a market place lending format. It's unclear if this source of capital will be stable over time, as other companies, most notably, Lending Club, had a difficult time attracting investors in early 2016, even though net returns seem higher on invoice finance platforms such as MarketInvoice[40] than on business loan platforms such as Funding Circle.[41]
Specialized factoring[edit]
With advances in technology, some invoice factoring providers have adapted to specific industries. This often affects additional services offered by the factor in order to best adapt the factoring service to the needs of the business. An example of this includes a recruitment specialist factor offering payroll and back office support with the factoring facility; a wholesale or /distribution factor may not offer this additional service. These differences can affect the cost of the facility, the approach the factor takes when collecting credit, the administration services included in the facility and the maximum size of invoices which can be factored.
Real estate[edit]
Since the 2007 United States recession one of the fastest-growing sectors in the factoring industry is real estate commission advances. Commission advances work the same way as factoring but are done with licensed real estate agents on their pending and future real estate commissions. Commission advances were first introduced in Canada but quickly spread to the United States. Typically, the process consists of an online application from a real estate agent, who signs a contract selling future commissions at a discount; the factoring company then wires the funds to the agent's bank account.
Medical factoring[edit]
The healthcare industry makes for a special case in which factoring is much needed because of long payment cycles from government, private insurance companies and other third party payers, but difficult because of HIPAA requirements. For this reasons medical receivables factoring companies have developed to specifically target this niche.
Construction[edit]
Factoring is commonplace in the construction industry because of the long payment cycles that can stretch to 120 days and beyond. However, the construction industry has features that are risky for factoring companies. Because of the risks and exposure from mechanics' liens, danger of "paid-when-paid" terms, existence of progress billing, use of withholding, and exposure to economic cycles most "generalist" factoring companies avoid construction receivables entirely. That has created another niche of factoring companies that specialize in construction receivables.[42]
Trucking[edit]
Factoring is often used by trucking companies to cover upfront expenses, such as fuel. Factoring companies that cater to this niche offer services to help accommodate truckers on the road, including the ability to verify invoices and fund on copies sent via scan, fax or email, and the option to place the funds directly onto a fuel card, which works like a debit card. Trucking factors also offer fuel advance programs that provide a cash advance to carriers upon confirmed pickup of the load.[43]
Invoice payers (debtors)[edit]
Large firms and organizations such as governments usually have specialized processes to deal with one aspect of factoring, redirection of payment to the factor following receipt of notification from the third party (i.e., the factor) to whom they will make the payment. Many but not all in such organizations are knowledgeable about the use of factoring by small firms and clearly distinguish between its use by small rapidly growing firms and turnarounds.
Distinguishing between assignment of the responsibility to perform the work and the assignment of funds to the factor is central to the customer or debtor's processes. Firms have purchased from a supplier for a reason and thus insist on that firm fulfilling the work commitment. Once the work has been performed, however, it is a matter of indifference who is paid. For example, General Electric has clear processes to be followed which distinguish between their work and payment sensitivities.[citation needed] Contracts direct with the US government require an assignment of claims, which is an amendment to the contract allowing for payments to third parties (factors).
Risks[edit]
Risks to a factor include:[44]
Counter-party credit risk related to clients and risk-covered debtors. Risk-covered debtors can be reinsured, which limit the risks of a factor. Trade receivables are a fairly low-risk asset due to their short duration.
External fraud by clients: fake invoicing, misdirected payments, pre-invoicing, not assigned credit notes, etc. A fraud insurance policy and subjecting the client to audit could limit the risks.
Legal, compliance and tax risks: large number of applicable laws and regulations in different countries
Operational risks, such as contractual disputes
Uniform Commercial Code (UCC-1) securing rights to assets.
IRS liens associated with payroll taxes, etc.
ICT risks: complicated, integrated factoring system, extensive data exchange with client
Reverse factoring[edit]
Main article: Reverse factoring
In reverse factoring or supply-chain finance, the buyer sells its debt to the factor. That way, the buyer secures the financing of the invoice, and the supplier gets a better interest rate.[45]
See also[edit]
Capital formation
Invoice discounting
References[edit]
Jump up ^ "Invoice Factoring and Discounting". Trade Finance Global. Retrieved 25 July 2016.
^ Jump up to: a b c d e f g h i j k l m n o O. Ray Whittington, CPA, PhD, "Financial Accounting and Reporting", Wiley CPAexcel EXAM REVIEW STUDY GUIDE, John Wiley & Sons Inc., 2014
^ Jump up to: a b c d e f g h i j J. Downes, J.E. Goodman, "Dictionary of Finance & Investment Terms", Baron's Financial Guides, 2003; and J.G.Siegel, N.Dauber & J.K.Shim, "The Vest Pocket CPA", Wiley, 2005.
Jump up ^ "Factor". Investopedia. Retrieved 27 July 2013.
^ Jump up to: a b c d J. Downes, J.E. Goodman, "Dictionary of Finance Investment Terms", Baron's Financial Guides, 2003. Taken from a combination of the definitions of a financial asset and accounts receivable
^ Jump up to: a b The WallStreet Journal, "How to Use Factoring for Cash Flow"[1]; small-business/funding.
Jump up ^ Please refer to the Wiki article forfaiting for further discussion on cites.
Jump up ^ "Factoring Guide to Factoring Companies & Invoice Factoring". factoringclub.com. Retrieved 2015-12-14.
Jump up ^ "About Us - Commercial Finance Association". community.cfa.com. Retrieved 2016-06-17.
Jump up ^ J. Downes, J.E. Goodman, "Dictionary of Finance & Investment Terms", Baron's Financial Guides, 2003; and
J.G. Siegel, N. Dauber & J.K. Shim, "The Vest Pocket CPA", Wiley, 2005.
Jump up ^ "What is factoring". WhatIsFactoring.org.uk. Retrieved 9 April 2017.
Jump up ^ BCR Publishing, "The World Factoring Yearbook", UK Section.
^ Jump up to: a b "ABFA: FAQs". ABFA.org.uk. Archived from the original on 14 March 2017. Retrieved 9 April 2017.
Jump up ^ "Scottish Law Commission :: Moveable transactions". ScotLawCom.gov.uk. Retrieved 9 April 2017.
Jump up ^ synonymous with cash flow requirements to meet current liabilities.
Citation - Manufacturers' uses of Factoring?
Jump up ^ "Invoice Finance and Factoring guide". tradefinanceglobal.com/invoice-finance. Retrieved 7 July 2016.
^ Jump up to: a b c d J.G. Siegel, N. Dauber & J.K. Shim, "The Vest Pocket CPA", Wiley, 2005.
Jump up ^ EU Federation for Factoring and Commercial Finance
Jump up ^ The return on its investment can be estimated by looking at its Net Income Relative to its Total Assets
Jump up ^ William J. Baumol, The Quarterly Journal of Economics, (November 1952), 545–556.
Jump up ^ As a general rule, when cash flow tends to be positive on average. However, as mentioned, there are periods of time in which cash flow can be negative (more cash flows out than in).
Jump up ^ Farag, I. 2013
Jump up ^ http://www.factoringsolutions.co.uk/what-is-factoring/
Jump up ^ Sillay, Joseph. "Factoring Costs: The 10 Most Misunderstood Cost Drivers" (PDF). Federal National Commercial Credit. Retrieved 20 June 2016.
Jump up ^ "Why Do Factoring Companies Hold a Reserve?". Commercial Capital LLC. Retrieved 20 June 2016.
Jump up ^ "Mechanism of factoring service | Factoring Finance LLC". factoring-finance.com.ua. Retrieved 2016-07-15.
Jump up ^ This means that the factor cannot obtain additional payments from the seller if the purchased account does not collect due solely to the financial inability to pay of the account debtor; however, "quality recourse" still exists. In other words, the nonrecourse factor who assumes credit risk bears the credit loss and incurs bad debt if a purchased account does not collect due solely to financial inability of the account debtor to pay.
Jump up ^ Memos, Financial. "Accounting Treatment for Factoring with and without recourse". Financial Memos. Retrieved 23 November 2013.
Jump up ^ "Academic paper: Factoring and Accounts Receivable Discounting. An Evidence from the Egyptian Market". ResearchGate.net. Retrieved 9 April 2017.
Jump up ^ "Four Centuries of Factoring"; Hillyer, William Hurd; Quarterly Journal of Economics MIT Press 1939; D. Tatge, D. Flaxman & J. Tatge, American Factoring Law (BNA, 2009)
Jump up ^ Bankers and Pashas: International Finance and Economic Imperialism in Egypt; Landes, David S.; Harper Torchbooks 1969
Jump up ^ Factoring, Jones, Owen; Harvard Business Review February 1939 and Factoring as a Financing Device, Silverman, Herbert R.; Harvard Business Review, September 1949; D. Tatge, D. Flaxman & J. Tatge, American Factoring Law (BNA, 2009)
Jump up ^ Silverman, Herbert R.; Harvard Business Review, September 1949
Jump up ^ Hillyer
Jump up ^ Silbert HBR January/February 1952
Jump up ^ Good Capitalism Bad Capitalism and The Economics of Growth and Prosperity; Baumol, William J., Litan, Robert E., and Schramm, Carl J. Yale University Press 2007
Jump up ^ Callender, Jeff (2012). How to Run a Small Factoring Company. United States: Dash Point Publishing. pp. 28, 36. ISBN 1938837029.
Jump up ^ Graziano, Same (May 2016). "Is "Alternative Lending" Suffering from an Identity Crisis?". The Secured Lender. Retrieved June 27, 2016.
Jump up ^ Bonner, Nadine (April 2016). "Fintech Factoring: The World's Oldest Method of Finance Goes Online". abfjournal. Xander Media Group. Retrieved June 27, 2016.
Jump up ^ "Statistics & Portfolio Performance". marketinvoice. December 2016. Retrieved December 5, 2016.
Jump up ^ "Investment Statistics". Funding Cirle. December 2016. Retrieved December 5, 2016.
Jump up ^ Callender, Jeffrey (2010). Fundamentals for factors. Dash Point Publishing. pp. 55, 56, 62. ISBN 0970936540.
Jump up ^ "Freight Factoring for Trucking Companies". factorfinders.com. Retrieved 2016-12-06.
Jump up ^ Alastair Graham; Brian Coyle (2000-03-01). Framework for: credit risk Management. Global Professional Publishi. pp. 1–. ISBN 978-1-888998-73-3.
Jump up ^ Lalit Raina; Marie-Renée Bakker; World Bank (2003). Non-Bank Financial Institutions and Capital Markets in Turkey. World Bank Publications. pp. 79–. ISBN 978-0-8213-5527-5. Retrieved 13 March 2013.
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values: تخصيم – Arabic

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https://az.wikipedia.org/wiki/Faktorinq
Faktorinq – Azerbaijani
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az
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values: Фактарынг – Belarusian

values: Фактарынг – Belarusian (Taraškievica orthography)

values: Факторинг – Bulgarian

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https://cs.wikipedia.org/wiki/Faktoring
Faktoring – Czech
cs
cs
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values:
https://de.wikipedia.org/wiki/Factoring
Factoring – German
de
de
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values: Πρακτόρευση Απαιτήσεων – Greek

values:
https://es.wikipedia.org/wiki/Factoraje
Factoraje – Spanish
es
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values: فکتورینگ – Persian

values: 채권매입업 – Korean

values: Ֆակտորինգ – Armenian

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https://it.wikipedia.org/wiki/Factoring
Factoring – Italian
it
it
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values: Факторинг – Kazakh

values:
https://hu.wikipedia.org/wiki/Faktoring
Faktoring – Hungarian
hu
hu
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values: Факторинг – Macedonian

values:
https://nl.wikipedia.org/wiki/Factoring
Factoring – Dutch
nl
nl
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values: ファクタリング – Japanese

values:
https://no.wikipedia.org/wiki/Factoring
Factoring – Norwegian
no
no
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values:
https://nn.wikipedia.org/wiki/Factoring
Factoring – Norwegian Nynorsk
nn
nn
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values:
https://pl.wikipedia.org/wiki/Faktoring
Faktoring – Polish
pl
pl
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values:
https://ro.wikipedia.org/wiki/Factoring
Factoring – Romanian
ro
ro
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values: Факторинг – Russian

values:
https://sk.wikipedia.org/wiki/Faktoring
Faktoring – Slovak
sk
sk
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values:
https://sv.wikipedia.org/wiki/Factoring
Factoring – Swedish
sv
sv
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values:
https://tr.wikipedia.org/wiki/Faktoring
Faktoring – Turkish
tr
tr
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values: Факторинг – Ukrainian

values: 应收账款保理 – Chinese

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