Factoring – what is it?
Factoring is a financial service that involves the purchase by a factor (factoring company) of a company’s outstanding receivables. This allows companies to gain faster access to funds, thus improving liquidity.
In the factoring process, a company sells its invoices (receivables) to a factoring company, which in turn pays it a certain percentage of the value of these invoices. As a result, the company does not have to wait for payment from its customers, which can be particularly beneficial in industries where payment cycles are long.
Factoring can take various forms, including full factoring (where the factor assumes the risk of customers’ insolvency) and partial factoring (where this risk remains with the company).
This service is particularly popular among small and medium-sized companies that need flexible financial solutions. Factoring can help to better manage working capital, as well as improve supplier relations and increase investment opportunities.
Frequently asked questions
1 What are the benefits of factoring?
Benefits include improved liquidity, reduced risk of counterparty insolvency and the ability to negotiate more favorable commercial terms.
2 What are the types of factoring?
Types of factoring include full factoring (with assumption of risk), partial factoring (without assumption of risk) and reverse factoring.
