Recent Comments

    The Journey for Business Development Now

    We continue with our long journey on the different ways of financing the business currency. And we have to talk about factoring, a medium that although years ago could be considered novel, today is part of the financial menu of any entity that works with companies. In fact, factoring is a medium widely used in third countries, which are unaware of the different types of commercial discounts we have discussed. And it makes sense, since factoring encompasses and surpasses them, even when it has its limitations.

    Factoring involves the cession by the company of the invoices you have against a customer to a financial institution, called a factor. From Alliance One you will be having the best options. Come on, you buy them. This entity will be responsible for the collection management of these invoices, and will anticipate them at the request of the transferor, applying an interest rate and a commission for the discount invoice, in a similar way to the commercial paper assumptions. Formulas that we have seen have important advantages:

    The existence of letters, checks, promissory notes that document the commercial relationship is not necessary. It suffices with the presentation of the corresponding bill, although at times we will be asked to indicate it, or to have a statement of reason (payment commitment to the financial entity filled out on the invoice itself), etc. The normal thing is that, before starting to work with the factor, the debtor company signs a letter whereby from that moment it undertakes to pay all the invoices of the transferor through the factor, although it does not necessarily have to be that way.

    • For the reasons mentioned above, it is especially interesting for companies that do not issue or accept commercial effects as a means of payment. This happens in large private companies that pay by transfer, but also in public sector clients and even with foreign clients, who are not used to our financial uses. When talking about forfaiting in international trade, we are talking ultimately about a factoring operation.
    • Elimination of insolvency risk: Factoring generally used in Spain is factoring without recourse. That means that the financial institution, the factor assumes the insolvency risk of the debtor. If it enters into bankruptcy (insolvency / suspension of payments) that risk is up to it. But be careful, that in the case of an improper filling of the invoice. or of mere commercial disputes, the factor reserves the right to charge, with expenses included, the invoice in the account of the transferor. Therefore, although it is true that the insolvency risk is eliminated, it does not completely eliminate the risk of default.

    This allows for better profitability ratios, a greater number of returns that financiers say to the Balance. Contrary to what some people think, the small Balances are more beautiful.

    In financial terms

    However, factoring, compared to the commercial discount, also has disadvantages:

    The interest rate is substantially more expensive in the case of non-recourse. It has its logic, given the translation of risk, but as we have seen that security only works in extreme cases, so sometimes we wonder if it is worth it.

    Comments are closed.

  • Partner links