Factoring is a type of bank financing in which, after receiving financing from the bank, the client assigns his receivables to him.
General information about factoring
Let's consider a classic type of factoring: recourse factoring on a debtor. In this scheme, your organization acts as a producer (provider) of a service. You need an organization that purchases your services. For simplicity, let's take a certain trading network, let's call it Tiksi. You deliver products to store shelves - bread. You understand that your working capital is not enough. Tiksi network, makes payment in your favor with a delay (30 days). However, asks that you ship on a daily basis. In such a situation, it becomes necessary to choose - credit or factoring.
Factoring scheme
The step-by-step scheme looks like this: 1) your organization supplies products to the distribution network. 2) You will receive documentation of the shipment. 3) provide these documents to the bank. 4) After verification, the bank provides financing in a certain amount established by the agreement (as a rule, up to 80%) to your current account, within 2-3 working days, after submitting the documents. 5) you receive funds not after 30 days, according to the agreement with the Tiksi retail network, but within 3-5 days. This allows you not to flush funds out of circulation. 6) after 30 days, the Tiksi retail chain makes the payment according to the contract. 7) the bank takes its interest for financing. 8) you receive the remaining 20% of the original delivery, minus the interest withheld by the bank.
Types of factoring
There are a huge number of types of factoring. Recourse factoring means that in case of non-payment by the debtor (the buyer - the Tiksi retail chain), your organization will have to return the money. There is also a non-regressive type of factoring. But he is a rare occurrence in the current market. There is also factoring for the supplier. Those. reverse factoring. Please note that factoring cannot be established for every customer. About a specific opportunity, it is necessary to clarify only with a specific bank.
Additional useful information
Factoring is an unsecured type of financing, which is very profitable compared to standard lending. An added convenience is that the bank controls the receivables, and there is no need to keep a separate employee on the staff. Factoring rates are in the market - which is very convenient. The cost of factoring is practically equal to the cost of the loan.
