Factoring means the assignment of unpaid debt claims to a factoring company in combination with insurance, accounting, legal, and sales services from the supplier. This financial instrument is used by companies that work with their customers on a deferred payment basis. Upon the shipment of goods to the buyer, the factoring company transfers to the supplier up to 90% of the transaction amount against the assigned receivables. The buyer transfers the payment to the factor’s account, after which the latter pays the seller the remaining amount minus the commission. Thus, the parties to factoring are the supplier company, the buyer (debtor) and the factoring organization.
The role of this side of the factoring operation can be a bank, a non-bank credit and financial firm, or another specialized organization. It is to her that the supplier transfers invoices, consignment notes or other documents to confirm the delivery of products by his client. Based on these official papers, the factor transfers money to the seller.
In most cases, factoring companies are independent firms, independent business entities. They usually form their resources at the expense of their own funds, which are initially formed from the capital of the founders. Then the capital gain is carried out due to the receipt of income from ongoing factoring operations.
The main advantage of specialized factoring organizations is the high quality of services in the collection and management of debt. In addition, such firms usually provide a comprehensive service, which may include, for example, insurance against the risks of non-payment by the debtor.
The second side of factoring is a legal entity or individual entrepreneur engaged in the production and / or small-scale wholesale (wholesale) sale of various products. Buyers who do business with such a firm may request a deferred payment. In this case, the supplier company will have a choice – to lose customers or provide a delay, appearing in a more favorable light in comparison with competitors, but at the same time losing part of its working capital. Factoring is designed to optimally solve this dilemma. Cooperation with such a company allows the supplier to receive unsecured financing and a competitive advantage in the form of deferred payment for buyers, quickly increase sales, and eliminate the cash gap.
This side of the factoring operation cannot be suppliers who:
- operate at a loss, are declared bankrupt;
- sell goods on terms of barter transactions;
- transfer goods on terms of payment upon sale;
- transfer related (affiliated) companies for factoring;
- sell goods, provide services under one-time contracts (except for winners of tenders);
- relate to “non-factorial” industries: construction, grain trading, agriculture, etc .;
- enter into long-term contracts with customers and issue invoices before delivery or at the conclusion of certain stages of the transaction.
Service on the terms of factoring is also not provided for debt obligations of individuals. persons and entrepreneurs who work without registration of a legal entity and are not engaged in the production of products.
The third party to the transaction is the company that purchases the goods from the seller on a deferred payment basis. The main requirement for a debtor is that he is a legal entity or an individual entrepreneur. On terms of factoring, suppliers can work with both regular (verified) and new clients.
Life Factoring is one of the largest companies in Russia specializing in complex factoring services. Our activities are primarily aimed at developing the small and medium-sized business segment. Life Factoring is a member of the board of the Association of Factoring Companies of the Russian Federation, which speaks of us as a reliable, solid partner. You can find out about the terms of cooperation by leaving a request or by calling in your region.