Advantages of factoring for the seller (client):
Advantages of factoring for the buyer (debtor)
1. What’s the difference between factoring and the credit?
- The credit is provided for a certain fixed term while factoring is provided for the term of the actual deferred days of payment;
- The credit funds are returned by the borrower while the amount of the factoring is repaid from the amount paid by the debitor;
- In case of a credit, as a rule, collateral is required while the factoring is secured by the claim for money;
- in difference to credit funds, the financing by factoring is not reflected in the balance sheet as loan funds;
- in case of providing a credit the solvency of the borrower is taken into basis, while in case of financing by factoring the buyer’s solvency is taken into basis;
- the credit funds are provided in one or two stages, while factoring is performed upon necessity;
- crediting does not presume provision of other services and factoring is not financing only but rather a complex of additional services.
2. Who the recourse factoring is designated for?
- Recourse factoring is designated for those who trust in their buyers and, consequently, there is no need for paying more expensively (recourse factoring is cheaper).
3. Won’t the buyers be afraid of the fact that the seller started to apply factoring?
- The reliable buyers that comply with payment terms can have only a positive attitude towards factoring. Let us mention also the fact that due to factoring itself the seller often provides the buyer with a longer deferred term. Using factoring is expedient not only for the seller but the buyer, as well, since due to factoring the buyer receives credit for goods, permanently ensures a variety of goods, temporarily has additional available funds.
4. Can factoring be applied in the sphere of services?
- Sure, factoring can be applied in case of providing services with deferred payment term.
5. What happens if the debitor does not pay for the goods supplied to him/her if the transaction was financed by factoring?
- In case the buyer does not pay the amount two options are possible, first of all, depending on the type of factoring (recourse or non-recourse factoring). In case of recourse factoring the seller is obliged to pay the amount not paid by the buyer to the Bank instead of the buyer, and in case of non recourse factoring the Bank should solve the issue of collecting the overdue liability itself bearing all the risks.
6. Will the Bank provide factoring against overdue accounts receivable?
- The Bank can provide factoring exceptionally for not overdue accounts receivable.
7. Which is the advantage of factoring over the credit?
- Virtually we speak not about advantage but rather about the fact that they meet different requirements of the client. First of all, factoring is a tool that provides for increase in the volumes of sales without a risk of increase in the overdue accounts receivables.
The main terms and conditions for factoring to be provided by the Bank:
Against the client’s waiver of the claim for money after the Bank finances and after the debtor fully complies with his/her liabilities within the established terms, the Bank performs final calculation on the same day and transfers the remaining part (non financed part) of the amount due against the waiver of the claim for money with the accrued interests and fines deducted to the client’s bank account.
The bank provides the following types of factoring:
By the nature of commercial transaction:
By the recourse right: