It is a product tailored to any entrepreneur or professional and, especially, for small and medium-sized companies that, with this formula, can reduce the workload of the administrative department, outsource accounting generated by sales and their collection, as well as advances on the due date of payment of invoices, all this will improve the profitability, credit capacity and financial solvency of the company.
Among the advantages of contracting this product are the periodic, regular and updated information of the debtors, the reduction of administrative burdens or simplifies the accounting of the customer account, among others. On the other hand, there is no defined profile of companies that use this financial product, rather the delimitation is provided by the product sold and the payment conditions.
In any case, it cannot be forgotten that this financial operation can be an alternative in financing a large part of the stores and online businesses. Depending on the nature of the business line they represent. What option to other financial products and banks of very special relevance and can determine the success or not of the operation from now on. Since we are facing a very specific model that requires a special understanding on the part of digital users at this time.
Factoring: kinds of models on the market
Factoring is not a uniform product, but on the contrary it provides different models as you will see below. Where there are different modalities of Factoring depending on the services you need or the debtor in question. Among them are the following:
Factoring without recourse, this modality offers financing, assuming the company of Factoring the risk of insolvency of debtors. Obviously, the rates in this mode are much higher.
Factoring with recourse, in which the seller bears the risk of insolvency, since the company of Factoring does not respond to non-payment by the debtor. This modality is distinguished because it does not necessarily imply financing.
Factoring from exportation, when it comes to operations carried out with debtors residing abroad. It is especially advantageous for exporting companies and SMEs that lack a large infrastructure, since it involves outsourcing services. With the factoring, the export becomes almost a national sale, since all you have to do is send the goods, and the rest is handled by the shipping company. factoring.
In this type of economic operation, an advance is not normally made when the goods are perishable products.
How this operation works
The main difference between non-recourse and recourse factoring is that, while in non-recourse factoring, the factor assumes the risk of default by the customer or debtor and cannot act against the assignor in the event of the transferor becoming insolvent. Being decisive for the evaluation of your hiring or, on the contrary, for its rejection for any circumstance. Because it is a financial model that is a financing alternative that is preferably oriented to small and medium-sized companies. And very especially those derived from business lines linked to electronic commerce, whatever their nature and management.
While on the other hand, it is necessary to emphasize that this is an operation that is especially promoted for business lines that are certainly linked to digital activities. For example, online stores or businesses in some very relevant sectors. From where you can take advantage of this financial product with a series of very precise conditions and those that other more traditional or conventional lines of financing lack.
Benefits in your hiring
This product provides a series of benefits to its applicants and we are going to try to summarize them by way of example. So that in this way, these people can analyze whether or not their hiring is convenient from now on and that it is after all one of their most immediate objectives. As in the following situations that we are going to explain below:
One of the most relevant is that no debts are generated. At the end of the day, it is basically an exchange of collection rights between the transferor company and the bank, and therefore no debts are generated in any of the terms allowed in the operation.
Outsource collection management
As it could not be less in this specific case, we could consider factoring as an external service to carry out collection procedures. This means that the company does not have to allocate any resources to this type of operation. And therefore you can put all your efforts into producing and selling.
Advantages of the product
This financial-administrative alternative offers a series of benefits to whoever hires it, such as those set out below:
- Reduces administrative burden and streamlines operational processes.
- Reduce bureaucratic work, which contributes significantly to a reduction in administrative, personnel and communication costs.
- It simplifies the accounting of the customer account, increasing the efficiency of the collection management.
- Provides periodic, regular and updated information on debtors.
- Converts credit sales operations into cash sales.
- Avoid the risk of bad debts due to bad debts.
- It provides the financial structure of the company with greater solidity.
- It allows a planning of the treasury that optimizes the cash flows.
- It expands the financing capacity and also improves the debt ratios.
- From a commercial point of view, it improves the company's position vis-à-vis competitors and customers, allowing it to expand its market.
Differences between conforming and factoring
Confirming, for its part, is also a financing instrument, but in this case the charges are not received from the company's point of view. In short, if factoring was a payment service to companies, confirming is a payment service to the company's suppliers.
Factoring is a service that is contracted to collect promissory notes; While confirming is a service that is contracted to pay debts to suppliers, summarizing the previous table in other terms, it could be said that:
Factoring is agreed with the objective of achieving liquidity for the company; while confirming seeks as a goal that providers are the ones who obtain liquid resources.
In factoring, it is the customer who decides to anticipate the invoice. In confirming, it is also the company itself that decides to favor its suppliers by allowing them the possibility of collecting their invoices in advance.
In addition, with confirming, the collection of invoices issued by debtors is ensured and the negotiation capacity is improved with them - it is easier to reach agreements with suppliers because payment is guaranteed.
Another main difference between factoring and confirming is that, although in the first case the company saw its profit hampered by the commission charged by the bank for having advanced a payment, in the confirming there is no expense whatsoever for it -or in concept of granting the credit line or remittance management concept.
Insolvency risk coverage
Precisely one of the advantages of this financial product for small and medium-sized companies is that it is related to the coverage of the risk of insolvency since contemplates 100% coverage of the risk of insolvency from classified buyers. By insolvency it is understood: suspension of payments, bankruptcy, existence of private bankruptcy of creditors, closure or cessation of activity. On the other hand, the insolvency risk coverage does not contemplate litigation and discrepancies of a technical-commercial nature.
Another of its most relevant advantages is based on the fact that it is responsible for the management of unpaid debts, taking the first steps to find out the causes of non-compliance and they are transmitted to the client, in the case that they are of contractual origin. In this way, the procedures to know the causes of non-payment are delegated and, if they are due to the insolvency of the buyer (debtor) and the coverage of the same was contracted, the entity in charge of providing this product will be the one that initiates the judicial procedures relevant.
Factoring cost
The services offered by the Factoring they represent a cost or price that you have to satisfy as a user of said services; the cost is basically formed by two elements that determine it:
The factoring fee, for the administrative services performed by the company factoring, It varies depending on the payment period for the invoices.
The interest rate, which will be applied when taking advantage of the modality that incorporates the advance of funds. However, the cost varies depending on the market situation (based on the 3-month Euribor plus the spread; the final interest rate is revised monthly) and the risk assumed by the company that markets this financial product.