Factoring is an effective financial instrument for managing accounts receivable and consists in the fact that the supplier company transfers the rights to a monetary claim from its counterparties to the factoring company. Factoring service is a comprehensive service, which also includes client financing, insurance against the risks of non-payment by debtors, accounting and legal support.
Who needs factoring of accounts receivable
If a manufacturing company (supplier, seller) of a product works with buyers on deferred payment terms and plans to increase its customer base and sales volume, expand the range of products, and at the same time expand the geography of its presence and increase its revenues, then factoring of receivables will allow it to be successful compete in the market and have a constant cash flow. This solution will enable the entrepreneur to actively develop his business. By entering into a factoring agreement with a factoring company, the supplier transfers to it the responsibilities of controlling receivables, so it no longer spends its own resources on it. Thanks to this approach, an entrepreneur can devote all his efforts to solving current business problems.
Differences between factoring and other financial instruments
- Applies to both existing and planned commitments.
- Recognized as financing receivables.
- Used only for monetary obligations.
- Does not provide for the need to obtain consent from the debtor.
- It is not borrowed funds and does not burden the supplier company’s credit burden.
- Is presented within the agreed limit, which keeps the bureaucratic issues of obtaining funding to a minimum.
- The procedure for considering companies for factoring is significantly different from that for other financial instruments.
Benefits of factoring receivables
- The factoring company does not require any collateral from the supplier (unlike banks when applying for a loan), and the decision to start cooperation is made on the basis of the minimum package of documents provided.
- Factoring accounts receivable gives the supplier confidence that payment is received, which allows him to more efficiently plan and allocate cash flows.
- The possibility of providing customers with a deferred payment, which the supplier receives, allows increasing the loyalty of his customers and attracting new customers with favorable terms of cooperation.
- Factoring services include insurance of possible risks of non-payment or default of the buyer, as well as control and resolution of all issues with debtors related to debt repayment.
Life Factoring provides a comprehensive service that includes not only financing, but also related services related to accounts receivable management. The decision to work with your company is made within 3 days based on the minimum number of documents. You can get more detailed information on the terms of cooperation by leaving a request or by calling the manager by phone in the region of interest.