Smart Options with the Perfect Net Working Capital Funding

Hello! Today, let’s talk about what factoring is. Suppliers of goods (and sometimes services) often face a choice – work on a prepayment or provide a deferred payment? In the first situation, you can lose part of the clients, in the second case – funds to finance current activities. Factoring will help to preserve the golden mean. We’ll talk about it in this article!

Factoring is the financing under the assignment of a monetary claim.In simple words, factoring can be explained as a form of commodity credit , where the rights to the debt of the debtor are transferred to a third party (in this case, the factor). Thus, the supplier of goods or services receives payment from the factor faster than stipulated in the supply contract with the buyer. When one is aware of what is net working capital then only he can go for these schemes now

The term came to us from the English language, where “factoring” in this situation is translated as “mediation”.

Act as a factor can be a specialized factoring company, and a factoring department of the bank (which is the most common in Here).

The essence of factoring is reflected in its functions:

  • Financing of the supplier, urgent increase of his working capital;
  • Management function, in other words – collection of debt;
  • Also, if necessary, insurance of non-payment risks.
  • Download Factoring Agreement in the Enforcement of Obligations
  • Download Factoring Contract with Financing Existing Requirements
  • Download Factoring Agreement for Future Claims Financing

Factoring scheme

Factoring always involves the participation of three parties:

  • Factor (factoring company or bank department);
  • The supplier of the goods (the client, the creditor);
  • The buyer (the debtor);

The most common factoring scheme can be depicted in several steps:

  • The supplier ships the goods, having agreed with the buyer on deferred payment (from a week to four months);
  • The supplier enters into a contract with a factoring company, hands over the invoices to it;
  • The factor finances the given invoices, the supplier receives his payment. Usually, the factor pays immediately about 90% of the total cost, the remaining 10% is paid after the receipt and inspection of the goods by the buyer. Of course, the factoring company takes the commission specified by the agreement for services.

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