The factoring lies in purchasing short-term accounts receivable - usually up to 90 days - arisen on the basis of the supply of goods and services, before their due date. 

Why use factoring? 

• Acquisition of capital for faster expansion of the company
  One of the great advantages of factoring is that the client does not need to wait for the payment from the purchaser - he has the money immediately at his disposal and may, for example, use it to settle his liabilities. He does not have to be concerned about the accounts receivable and can fully concentrate on his business. 

 

• Increasing competitiveness
  Thanks to the ensured financing you can offer your purchasers longer payment periods, which may represent a significant competitive advantage, and on the other hand thanks to having sufficient finances you can make use of discounts offered by suppliers for prompt payment. 

 

• More effective cash flow planning
  It is solely up to you, when and what volume of receivables you will turn into cash. You may draw only the amount of finances, which you need at the given moment. 

 

• Insurance of accounts receivable
  In the case of non-recourse factoring, where the accounts receivable are also insured, the clients are sure to receive up to 100% of the nominal value of the accounts receivable, within 90 days after its due date. 

Factoring or bank credit? 

Factoring can be understood in simple terms as a credit, which is secured with specified accounts receivable. On the other hand, a bank credit is usually secured with real estate or machinery, which may represent a problem for young and fast growing companies, which do not wish to tie up resources in fixed assets. Contrary to credits, financing via factoring is not included in the Balance Sheet on the liability side, therefore it does not increase the debt ratio of the company, and the Balance Sheet of the company remains free for possible use of bank financing. Moreover, in factoring the purpose for financing is not examined.
Compared with the classical credit, factoring is more flexible, since the advance is paid towards debts of certain debtors, immediately after their creation, while in a classical credit the finances are drawn gradually. While in credits, the key indicator is the solvency of the recipient, in factoring it more concerns the solvency and number of purchasers and the nature of the contracts. Therefore, a client usually has more finances at his disposal through factoring than in the case of financing via a bank credit. 

How does factoring work? 

The company provides the factor with basic information about itself and its purchasers. Having assessed the solvency, the factor will set financing limits for individual purchasers and conclude a general contract. Within it the company may have 70 and more percent of the value of the accounts receivable immediately after issuing the invoice. After the purchaser pays the invoice into the account of the factoring company, this company will prepare the statement and pay its client the remaining balance of the accounts receivable as an additional payment. 

How much does factoring cost? 

The price of the factoring services is comprised of two components: The first is the factoring fee for processing and securing risks, which ranges from tenths of a percent up to 1.5% of the nominal value of the assigned receivables. The second component is the financial interest, which similarly as a bank the factor sets in relation to the PRIBOR inter-banking rates applicable in the given period. The amount of the fee is influenced mainly by the degree of the risk and its security, volume of financing, number of purchasers, the country of the purchaser, complexity of processing, scope of services and due dates of the accounts receivable.