Factoring is a complex of services associated with the provision of deferred payments for buyers of goods and services. Factoring operations are gaining popularity among entrepreneurs today.
The concept of factoring operations and their advantages
Factoring operations are represented by a range of services that are associated with the provision of deferred payment. This is a kind of intermediary activity in which the role of an intermediary belongs to a factoring company or a bank. This company, for a pre-agreed payment, receives the right to claim and credit to the seller's account the amounts of money owed to them from the buyers.
The scheme of work within the framework of factoring operations is as follows. The seller ships the goods to the buyer and transfers the documents accompanying the delivery to the factoring company (invoice, invoice). She pays 90% of the value of the goods supplied. And after receiving the debt from the buyer, he transfers the balance of funds minus his own commission.
The popularity of factoring services is due to the fact that the supplier promptly receives money for the shipped goods and does not have a shortage of working capital. Moreover, the seller has the opportunity to reduce the risks associated with the postponement. In particular, such as currency fluctuations, fraud, non-payment of goods, inflation, etc. Factoring companies also carry out professional work with debt, and can also take appropriate measures to return the debt. They check the business reputation of buyers and monitor the status of the debt.
Classification of factoring transactions
Factoring transactions can be classified on various grounds. From the point of view of the region of the transaction, they are divided into domestic, when all participants in the transaction are in one country and international, when one of the participants is a resident of another country.
There are also open and closed factoring operations. In the latter case, the buyer does not know about the participation of the factoring company in the transaction. Open factoring transactions are not confidential.
Operations with or without recourse can be distinguished. In the first case, the factoring company has the right to claim compensation from the creditor if the buyer refuses to pay. There are practically no non-recourse agreements.
Types of factoring operations
Based on the scheme of factoring, it is possible to distinguish such types of operations as checking suppliers, financing a deal, managing debt and covering the risk of non-payment.
Before any factoring operation, a preliminary check of the supplier and buyers is carried out. Thus, the factoring company insures itself against possible risks of fraud. Based on the analysis of potential debtors, the future financing limit is determined, and this is also done in order to identify unscrupulous buyers.
The key factoring operation is the financing of the transaction, thanks to which the supplier has the opportunity to replenish working capital, and the buyer has a deferral of payments. It is for this that they turn to a factoring company.
The factoring company manages accounts receivable, it helps to improve the payment discipline of clients and prevent delinquencies. Outsourcing this operation has economic advantages for the supplier, compared to organizing a separate unit.
The service to cover the risk of non-payment implies that the supplier receives money regardless of the receipts from the debtor, and the factoring company assumes the risks of non-payment. This operation is optional.
