All The Essential Options for the Proper Factoring

Factoring over the past year and a half has experienced many changes – some market participants even believe that because of the crisis the market returned to 5 years ago. The decrease in the volume of factoring transactions was due to the unsustainable financial condition of both customers (producers and trading companies), as well as banks and factoring companies. In addition, there was a sharp decline in the number and volume of trade transactions themselves.

Factoring or credit?

Factoring appeared about 100 years ago in the US, and in the middle of the 20th century – in Europe. Now the international factoring industry is actively developing: in the world there are about 1000 factoring companies. About 66% of their turnover falls on Europe, 22% – on the US, 11% – on the countries of Asia. In case of the reverse factoring also you will be getting the options now.

Recall that factoring is a complex of financial services consisting in transferring the right to claim cash (receivables) for the delivered products to the bank (factor) and to receive the supplier of immediate payment. That is, the supplier, working with customers in installments, can receive payment for goods or services immediately after they are shipped. And the debt to the bank or a factoring company is paid off by the debtor. With the help of factoring, the company can get 50-95% of the debt without a loan and lien.The contract limit is usually from 1 to 3 months. The service itself costs the customer more than a normal loan, but factoring has a number of advantages – for example, an easier process for obtaining financing and no limitation on the amount of financing, as it may increase depending on sales growth.

Factoring is beneficial to wholesale trade enterprises that supply products to stores (in the chain stores, supermarkets), to manufacturing enterprises that sell goods to distributors, to suppliers that sell goods and raw materials.

The service is intended to replenish the current assets of the enterprise, i.e. ensuring the receipt of funds immediately after the delivery of goods, without waiting for the end of the period of deferred payment. That is, the enterprise’s accounts receivable turns into “live” money.

Advantages of factoring:

  • The enterprise receives the opportunity to finance working capital without collateral (collateral)
  • Factoring accelerates the period of turnover of funds

In comparison with standard credit products, for example overdraft, factoring allows you to get up to 90% of the amount of goods delivered (future receipts).

  • Factoring is the ability to provide more favorable (competitive) settlement terms to its debtors (customers).
  • Factoring improves the status of the customer’s receivables. The factor checks the reputation and payment discipline of the debtor, makes sure that the debt is repaid in time and in full.

If we talk about the shortcomings of factoring, then this: the bank’s strict requirements for the provided documents relating to the sale of goods, often – the need for bail for the customer, more expensive in comparison with the loan price.

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