Factoring operations are based on the assignment by the supplier of unpaid debt claims to the factoring firm. This form of cooperation is suitable for enterprises working with clients on a deferred payment basis. The existing Russian and world practice has led to a variety of types and forms of factoring services, classifying operations according to several of the following criteria.
By geography of cooperation
Internal. In this case, the factoring company, the supplier and his buyer are located within the same country.
International. Factor firm, supplier and debtor are located in different countries. International factoring operations are divided into direct export, direct import, mutual, back-to-back.
By the awareness of the parties to factoring
Open. The debtor is notified that the monetary claim has been transferred to the factoring company, which will provide legal, accounting and other services to the supplier company. In this case, the debtor must make payment in favor of the factor.
Hidden. The supplier’s counterparty does not inquire about the latter’s appeal to the factoring company. At the same time, its activities are limited only to some factoring operations: purchase of a monetary claim, payment of debt, etc. The debtor makes settlements with the supplier, who, after receiving payments, transfers them in full to the factoring company.
By right of recourse
With the right of recourse. In recourse factoring, the factor has the right to sell to the supplier any unpaid debt claim if the debtor refuses to pay, regardless of the reason, including lack of funds. In this case, the supplier company does not pay for the risk insurance. Such a factoring scheme is suitable for those firms that are confident in the solvency of their customers and are ready to track it on their own.
No recourse . Non-recourse factoring service provides that the factor assumes the risk of default on the part of debtors. However, if the debt claim is declared invalid, it can be returned to the supplier. In non-recourse factoring, accounts receivable are managed by the factor itself.
By counterparty of a factoring transaction
Direct. A standard factoring scheme under which a supplier receives financing against the assignment of a monetary claim.
Inverse. The scheme of “purchasing” factoring is as follows: the factoring firm buys out the receivables from the supplier at par, and at the end of the deferred payment, the buyer returns the cost of the financed shipment. In this case, payment of the commission for the provision of factoring services is made by the buyer.
By type of customer receivables
For urgent debts. A factoring company purchases term receivables that have not yet been settled. In most cases, this is a prerequisite for cooperation between a factoring company and a supplier.
Overdue debt. Such receivables arise if the debtor has violated the settlement period. Factoring operations in this case are an exception and are carried out in extremely rare cases. Factoring companies with overdue debts work in collaboration with collection agencies. However, this activity is not a priority for factor firms.
Life Factoring offers comprehensive factoring services, which include not only timely financing, but also insurance of possible risks, assessing the solvency of debtors and managing accounts receivable. To find the best factoring scheme for your business, leave a request or contact our specialist by phone in your region.