Factoring(from the English word “factor” - sales agent, intermediary) is a set of services related to financing, covering the risk arising from the provision of trade credit, as well as the collection of receivables. It is provided to suppliers who work with their clients on a deferred payment basis.

The essence of factoring is that the supplier (manufacturer, seller) receives most of the funds practically upon delivery. The buyer receives the goods with the right to pay for it later, and the company providing this service receives a commission.

Participants in the process and services provided

In the factoring process there are three sides. This is the supplier (creditor), buyer (debtor) and intermediary (factoring company), which provides the supplier with the opportunity to receive money for the goods immediately. Sometimes factoring services are provided by ordinary banks, but the essence of the transaction does not change.

The main service provided by factoring companies (FCs) is the provision of funds to pay for delivered goods, which, in essence, is lending to replenish working capital.

However, this method of attracting finance has several advantages before a regular bank loan or overdraft. Here list some of them:

1. Does not require collateral of property.
2. No hidden commissions.
3. No bureaucratic delays.
4. Allows you to increase the volume of lending depending on your needs. To receive funds, it is enough to present a document confirming the fact of delivery.

FCs do not have the right to limit themselves only to financing the supply of goods. Such organizations, according to the law, must provide at least two services from the list below:

1. Financing against the assignment of a monetary claim.
2. Insurance of possible risks of non-payment.
3. Maintaining supplier accounting.
4. Collection of accounts receivable.

Thus, factoring is able to service the entire commodity chain in terms of financial logistics.

Mechanism and scheme of action

The typical mechanism of factoring is that the supplier provides shipping documents to the financial company confirming the fact of delivery. After which he has the opportunity to immediately receive 80-90% from the amount of the shipment made.

Next, the buyer pays the full cost of the goods within the agreed time frame, transferring the money to the account of the company providing the factoring service, and the supplier receives the rest of the amount, minus the commission. The amount of commission depends mainly from the amount of deferred payment.

Legally, such an operation looks like an act of transferring receivables with all the ensuing consequences. Although in fact she has a number of features.

Existing types

Exist two main types of factoring. This is factoring with regression And without recourse.

In the first option, responsibility for non-payment of debt by the debtor lies entirely with the creditor. If the debt is not repaid by the buyer within the established period, then the supplier of the goods must repay it.

When concluding an agreement for the provision of factoring services without recourse, the FC assumes responsibility for collecting the debt from the debtor. This method looks more attractive, but due to the increased financial risk it has higher commissions.

Factoring also happens internal And external. Domestic is when all operations are carried out within one state. External, also called international factoring, occurs when the FC and the supplier are located in different countries.

Factoring services can be provided with notification to the debtor. In this case, factoring is called open. If the debtor is not informed about the service, then such factoring is called closed.

With the development of digital document management, electronic factoring. It compares favorably with the traditional one in that it allows you to instantly and automatically carry out operations based on electronic documents.

Application in banking

In the rankings of Russia's leading factors, specialized companies are in the forefront. However, if you look closely, you can see that most of them are part of financial groups headed by bank. For example:

• VTB Factoring - VTB;
• GPB-Factoring - Gazprombank;
• RB Factoring - Rosbank Group.

However, many banks provide financing services in exchange for receivables without creating separate structures for such purposes. This is what the following do organizations:

• Alfa Bank;
• Petrokommerts;
• UniCredit;
• Metallinvestbank;
• Promsvyazbank, etc.

The difference in the quality of service between a bank and a specialized structure is small. But a client who cooperates with a bank on factoring has a greater chance of receiving a favorable loan and more prompt service in the future.

Chairman of the Board of the National Factoring Company Bank R.V. Ogonkov will talk about what factoring is and what types of it exist in this video:

Benefits and Risks

The advantages of factoring are more than clear to every entrepreneur. Payment for delivery without delay allows you to more accurately plan financial flows, accelerate capital turnover, and, consequently, increase the level of profitability.

Given equal initial conditions, factoring allows you to increase trade turnover twice as fast as in the case of lending to replenish working capital.

The FC, subject to an appropriate agreement, is capable of taking on a significant part of the financial risks. However, in such cases the cost of its services will be slightly higher. Very often, this approach is justified because it frees the lender from worries about receiving payment from problem buyers.

When factoring with recourse there is a risk that the buyer will not pay receivables on time. Then the FC will have to reimburse the missing funds on its own. Therefore, when working under such conditions, it is necessary to carefully select buyers.

Examples

Let's look at an example factoring without recourse.

Company "A" sells a batch of food products to company "B" with the condition of deferring payment for 3 weeks. The factoring company rates its services at 2% for each week of deferment. Therefore, the service delivery process will look like this:

1. Company “A” ships the goods to company “B” and transfers a document confirming the fact of transfer of the goods to FC.
2. FC immediately transfers 90% of the cost of the goods to the account of company A.
3. Company “B” makes payment for the goods received two weeks later.
4. FC transfers the missing amount to the account of company “A”, minus 6% commission.

If company “B” refuses to fulfill its obligations, then company “A” assumes all costs.

When a factoring agreement with recourse is concluded, in the event of non-payment for the goods received, FC assumes the function of a collection company. After the debt is returned, the supplier company receives the missing amount in accordance with the conditions specified in the factoring agreement.

In the Russian Federation, factoring was recognized at the official level in 1992, when it was released Law “On Banks and Banking Activities” and this type of service was included in banking operations and transactions.

The concept of factoring is enshrined at the legislative level. All operations related to this type of service are regulated by Chapter 43 of the Civil Code of the Russian Federation “Financing against the assignment of a monetary claim.” Considering the undoubted benefits that this progressive method of lending brings to the state economy, legislation is constantly being improved and updated in accordance with international standards.

In Russia there is a professional public association of participants in the factoring market (AFK). About 91% of the factoring market turnover comes from this association.

Leading companies those providing services on the domestic market are considered to be:

• VTB Factoring;
• Life Factoring;
• SBERBANK FACTORING LLC;
• Bank "National Factoring Company".

Since 03/01/2015, Russia has been a member of the UNIDROIT Convention, which is supported by Law No. 86-FZ and allows Russian companies to carry out factoring under foreign economic contracts.

Elena Gladkikh, General Director of the Russian Factoring Company, will help you understand the advantages and risks of factoring, and also reveal the mechanism of factoring:

What does the word “factoring” mean? Factoring is the assignment of debt to a third party, carried out with the aim of normalizing financial relations and eliminating delays in payment for goods, work, services or rights. Successful running and development of a business is impossible without obtaining additional funding. Factoring provides financial support for ongoing business and makes it possible to receive funds before the buyer pays for the delivery. Thanks to this service, the company returns funds to circulation faster, while reducing the percentage of production risks.

Factoring can be called a chain of services necessary for the assignment or transfer of receivables, that is, the debt of one company to another. In simple terms, a factoring company (in particular a bank) pays the client for his goods or services instead of the buyer (75–90% of the cost), buys short-term receivables and discounts payment documents. In this case, the intermediary (factor) receives a commission from the debtor's debt.

Factoring is a specific type of lending for goods or services. The convenience for the seller is that without his participation, the intermediary collects the debt from the buyer. If a company sells goods in installments, there is no need to wait until the end of the installment plan. Thus, a businessman or supplier of goods receives real money, which allows him to develop and function.

Factoring sides:

• The client is the product supplier (lender).
• Buyer (debtor).
• An intermediary (bank) providing real money to the seller.

Advantages of factoring

Factoring benefits all parties. Sellers can receive money before selling goods or services, and the intermediary has income in the form of a share of the buyer's debt. Thus, the factoring company reduces the risks of all participants in the relationship.

The advantage of factoring is the possibility of debt collection, which allows you to finance working capital. The factoring company bears risks if it is the insurer of the transaction. The combination of these factor functions allows small and medium-sized businesses to operate and develop. This is especially beneficial when small companies fail to obtain a bank loan.

An established communication scheme between the three parties ensures a smooth trading process and contributes to the development of the economy and market. The supplier receives money quickly, and there is no collateral or guarantor provided, as with lending. The buyer receives the goods and sells them without delay. The factoring company receives a commission from the transaction performed. The convenience of such a transaction lies in mobility and simplicity, and the benefits are obvious due to flexible terms and low interest rates.

Types of factoring:

• Classic type of factoring with recourse. If goods are sold with a delay, then the factoring company buys out about 90% of the debt. After the expiration of the period, the intermediary has the right to demand from the seller the funds issued before this. If recourse occurs, the factoring company takes virtually no risk. This is the optimal type of relationship with regular customers.
• Non-recourse factoring means that the intermediary company independently demands money from the buyer in case of late payment of invoices. A current type of factoring when interacting with new clients.
• Domestic factoring involves participants residing in the same country.
• The international type of factoring relationship involves the participation of parties from different countries. International entities take part in the transaction, namely the factor from the supplier and from the buyer.
• Open factoring. The buyer-debtor is notified of the direction of payment to the factoring company, which is noted on the invoice.
• Closed factoring implies secrecy of the transaction. The lender is not informed about the participation of an intermediary company in the transaction.
• Reverse factoring involves the possibility for the creditor to defer payments on debts or for products received.

The factoring company is obliged to finance, maintain accounting, present monetary claims for payment and protect against insolvency of debtors. A factoring company can be a commercial organization or a bank. Nevsky Bank provides services

Hello! Today we’ll talk about what factoring is. Suppliers of goods (and sometimes services) are often faced with a choice: to work on prepayment or to provide deferred payment? In the first situation, you may lose some clients, in the second case, you may lose funds to finance current activities. Factoring will help you maintain the golden mean. We will talk about it in this article!

Factoring concept

What is factoring?

Factoring- This is financing against the assignment of a monetary claim.

In simple terms, factoring can be explained as a form of trade credit. when the rights to the debtor's debt are transferred to a third party (in this case, to the factor). Thus, the supplier of goods or services receives payment from the factor faster than agreed in the supply contract with the buyer.

The term came to us from the English language, where “factoring” in this situation is translated as "mediation".
Both a specialized factoring company and the factoring department of a bank (which is most common in Russia) can act as a factor.

The essence of factoring is reflected in its functions:

• Financing the supplier, urgent increase in its working capital;
• Management function, in other words – debt collection;
• Also, if necessary, insurance against non-payment risks.

• Download the Factoring Agreement for the purpose of ensuring the fulfillment of obligations
• Download the Factoring Agreement when financing an Existing Requirement
• Download Factoring Agreement for financing Future Requirements

Factoring scheme

Factoring always involves the participation of three parties:

1. Factor (factoring company or bank department);
2. Supplier of goods (client, creditor);
3. Buyer (debtor);

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

• The supplier ships the goods after agreeing with the buyer on a deferred payment (from a week to four months);
• The supplier enters into an agreement with the factoring company and transfers the invoices to it;
• The factor finances the invoices provided, the supplier receives his payment. Typically, the factor pays approximately 90% of the total cost immediately, the remaining 10% is paid after the buyer receives and inspects the goods. Of course, the factoring company takes a commission for services specified in the contract;
• The buyer pays the goods to the factor.

Factoring stages

1. Preliminary work . Before concluding a contract, an assessment and analysis of the potential client and his financial capabilities is carried out. The supplier must provide information about buyers, terms of delivery, payment and, of course, cases of violation of the contract, if any have occurred in the past;
2. Documenting. The following must be specified in the agreement for the provision of factoring services:

• Subject of the agreement;
• Rights and obligations of participants;
• Financing procedure;
• Credit limit;
• The procedure and conditions for transferring debt rights to the factor;
• Price of factor services, calculation procedure;
• If necessary, insurance against violation of obligations by the debtor;
• Duration of the contract, as well as other conditions.

1. Factoring transaction control:

• Do all participants fulfill their obligations (in case of violations, a claim is filed);
• Do the assets involved comply with the documented requirements of the factoring company;
• Should the assessment of the client (supplier) or debtor (buyer) be changed?

When is factoring necessary?

The need for factoring is closely related to the growth of world trade, when long periods of time after the shipment of goods and before payment increasingly begin to appear.

The need for factoring may arise in force majeure situations.

The main cases when entrepreneurs resort to it can be outlined as follows:

1. If you urgently need to increase working capital, and through factoring it turns out to be cheaper than through a short-term loan. More often, this reason is relevant for small businesses, for which there are very few accessible and profitable loans in modern Russia;
2. When in order to attract a buyer it is necessary to provide him with convenient payment terms;
3. To work with new customers who are unstable in payment;
4. When delivering from small enterprises to giant corporations, since the latter often work according to inflexible schemes with unchanged payment terms.

Factoring services are not provided:

1. Companies with a large number of customers with current debts;
2. Manufacturers of specialized goods;
3. Companies that do not issue invoices immediately, but after completing certain work;
4. Companies working with subcontractors;
5. Suppliers providing after-sales service.

Also, it should be noted that factoring is not possible in relation to:

1. Settlements between branches of the enterprise;
2. Debt obligations of individuals;
3. Budgetary organizations.

Factoring or loan

Factoring	Credit
Short terms, from several days to a year (no more)	Only long term is possible
No deposit	Usually given on bail
The amount depends on the supplier's sales volume	The loan amount is determined in advance
Finances the current activities of the company	More often issued for business expansion and other changes
A commission is deducted from the amount. There is a scheme when the debt amount is paid in parts (for example, part before settlement with the debtor, part after)	The full amount is issued immediately
Less paperwork (contract, invoice, invoice), the contract can be indefinite, having concluded it once, the client will receive financing after presenting the invoices and invoices	A large package of documents is required; repayment of one loan does not guarantee the receipt of the next one. For every loan - a new agreement
The debt is returned by a third party	The debt is repaid by the same person who took the loan

Types of factoring

There are several classifications of factoring. The main ones:

1. According to information:

• open (the buyer knows about the agreement between the supplier and the factor, makes payment to the latter);
• closed (the buyer does not know about the presence of a factoring company in the transaction, he pays for the goods to the supplier, and the latter already pays the factor).

1. By risk distribution:

• factoring with recourse (used less frequently, it implies that the factor returns unpaid invoices to the supplier and demands repayment of the loan if the debtor violates the contract);
• without recourse (the factoring company assumes all risks and covers everything, even the client’s legal costs caused by debt collection).

1. When the debt arises:

• real (the factoring agreement is concluded after the onset of debt obligations);
• consensual (the debt obligation is assigned in advance).

1. By residency of participants:

• domestic (all participants are in the same country);
• external (aka international factoring).

1. By number of factors:

• direct (one factor is involved in the transaction);
• mutual (two factors).

1. According to the range of services provided:

• broad (conventional) - in addition to financing and debt collection, the factoring company provides accounting, insurance and other customer services;
• narrow (limited) - the list of services is limited to basic functions.

1. By type of document flow:

• electronic (EDI factoring) - using electronic document management;
• traditional.

Advantages and disadvantages of factoring

Advantages of factoring:

1. No deposit required;
2. Soft requirements for the solvency of the supplier;
3. Acceleration and guarantee of uninterrupted cash flow. The intended use of funds occurs in full (when using loans on the account, the company must always have a constant balance);
4. The factoring company actually organizes the collection of the client’s debt;
5. The conclusion of a factoring agreement can be regarded as insurance against non-payment or insurance against currency risks in international transactions;
6. Savings on, which is paid from the moment the goods are shipped. Without factoring, a situation is possible where tax obligations for goods will occur before the supplier receives funds from the buyer;
7. Financing through factoring is not considered a loan, and therefore does not affect the company’s balance sheet;
8. Attracting customers with a flexible payment schedule for goods or services.

Disadvantages of factoring compared to lending:

1. High cost – factoring commission in Russia can be up to 10% of the buyer’s debt or up to 30% per annum;
2. With a fast and smooth payment rhythm, factoring is pointless;
3. It is necessary to provide detailed information about buyers;
4. In practice, factoring is currently applicable exclusively to deliveries paid by bank transfer.

How to choose a factoring company

When choosing a company providing financing under a factoring scheme, you should consider:

1. To solve what problems do you need factoring services? If you need a factor for long-term work with problem supplies, do not skimp on a large and proven factor with a wide range of services. For one-time situations, more modest options are suitable;
2. Always check reviews. In the age of the Internet, this will not be difficult. Select objective assessments of past clients and, based on them, select the factor that suits you;
3. Compare the cost of services. What commission does the factor take for its services? Is there a fee for late payment by the buyer?
4. The ability to use the Internet to exchange documents and electronic signature significantly speeds up the process.

TOP 10 banks providing factoring

There are many banks that provide factoring services. Here are just the main ones:

1. Sberbank
2. Alfa Bank
3. VTB 24
4. Gazprombank
5. Credit Europe Bank
6. SME Bank
7. Bank National Factoring Company (NFC)
8. Bank "Revival"
9. Promsvyazbank
10. OTP Bank

Which bank to choose is up to you! If you have experience working with any bank, we are waiting for your feedback in the comments!

Nowadays it is impossible to imagine running a successful business without third-party financing, which most often comes in the form of lending (submit an online application) and, less often, factoring. The main task of factoring is that, unlike lending, this service involves financing current business, and not investment activity as a whole. Officially, factoring is usually understood as a certain set of financial services, the main purpose of which is to transfer or assign existing receivables to a particular company.

In this case, accounts receivable are the debts of one specific organization to another. Therefore, in simple terms, factoring is a unique type of lending against goods already received or services performed. That is, if a company sells its goods on a deferred basis, it does not have to wait until the deadline expires.

At the same time, this organization has the opportunity to receive its funds for the goods immediately after receiving them from a factoring agency - an intermediary (most often credit institutions play this role), and not from the buyer himself. Moreover, all existing debt is collected by a factor (a bank or a separate company) without the direct participation of the seller himself. So the factoring company assumes the responsibility to pay all the money for the goods instead of the buyer, and the businessman will receive real money at his disposal.

Based on all that has been said, it is easy to conclude that factoring provides an excellent opportunity for sellers to receive payment for their products or services even before they are directly sold to the end buyer.

Factoring parties are:

1. The supplier, who is the client of the factor, that is, the creditor.

2. Buyer, that is, debtor.

3. The factoring company itself is an intermediary, which is usually called a factor. This company takes over the receivables of a specific organization or buyer, while providing real money to the seller.

In simple terms, factoring helps the parties to the transaction to remain in their own interests with the minimum possible risks. That is, the supplier promptly receives his funds, the buyer sells the goods without any problems, and the factor receives a certain commission from the transaction. Moreover, unlike lending, with factoring it is not at all necessary to provide collateral or guarantors. In addition, the terms of factoring are quite flexible, and the final interest rates are significantly lower than with other types of lending.

Modern types of factoring

Factoring is constantly being improved as the modern market develops. Adapting to modern trends, factoring has acquired more and more varieties and types that can offer their potential clients a huge number of innovative solutions.

So, modern factoring services offer the following types of relationships:

1. The classic type of factoring is with recourse. Used when selling goods with deferred payment. Most often, the factor buys no more than 90% of the receivables from its client. And as soon as the period expires, recourse arises and the factor receives the right to demand from the enterprise (client) the previously issued financing. For a factoring company, the risks are reduced to almost zero. It is especially convenient when partnering with regular customers.

2. Another type of factoring is without recourse. In simple words, the factor will have to independently demand the debt from the creditor or buyer if he does not pay all his bills on time. This service is subject to a high degree of possible risks, so it is significantly more expensive than with the right of recourse. The use of this type of factoring is especially important when working with new clients – creditors.

3. The internal type of factoring presupposes the presence of all parties to the transaction in one territory in one state.

4. International, that is, the appearance of factoring. It assumes that the parties to the transaction may be completely different entities from different countries. In this case, two factors take part in the transaction, one of which represents the supplier, and the other the buyer.

5. There is also an open type of factoring. It assumes that the creditor-buyer is aware that the agreement involves a factor who makes payments on his account. In this case, the debtor is notified of the redirection of payments to the factor's company, which is noted on the invoice.

6. The closed type of factoring is characterized by the fact that the debtor should not be notified of the factor’s participation in the transaction.

7. A reverse type of factoring is also provided. It is of particular importance for the creditor, that is, the buyer, since it makes it possible to significantly defer payments on credit debts or for goods already received. In this case, the second party to the agreement loses absolutely nothing.

8. There is another type of factoring, which is intended for works or services. In simple words, the significant difference between this type of factoring is that the factor is included in the agreement much later than in other types of factoring. This type is especially relevant when, due to certain force majeure circumstances, the company begins to urgently need third-party financing.

depends on the organization, but it seems like yes, they can use factoring! in any case, such cases are known to me!

#13

Tell me, can government organizations use factoring to participate in tenders?

#12

Thanks for the useful article. The concept of factoring is fully explained in simple words. I would like to know more about accounts receivable...

#11

Thank you for explaining the concept of factoring in simple terms. Now I finally understand what it is, and those who unsubscribed in the comments complemented the discrepancies... Thank you.

#10

Well, this is already in the category of phobias - you have some kind of intolerance to financial institutions. Everything is normal, and factoring is a useful measure and a loan is sometimes like manna from heaven. You need to take a simpler approach to such things, Vladislav.

#9

just to make money off the people. I can’t stand all these banks! I even feel bad when I have to go into a bank when necessary, it’s hard to breathe there...

#8

Who knows, factoring has various programs, it is different and you need to look at which option you are offered to cooperate with. If you're not careful, it may turn out that a lot of money comes out of your pocket.

#7

The debtor pays, of course, so how will you pay? Your party is the third, that is, you are not guilty. The debtor will pay everything!!

#6

And with factoring, who pays this share of the debt amount to the bank? Debtor or me?

#5

What don’t you understand, Marina? Factoring, simply put, is when any factoring company pays you money for being a buyer. Then she herself deals with the buyer in terms of refund. What do we get? But here's the thing - you immediately have the money, and the factoring company (this, by the way, can be any bank) has in its pocket a share of the amount owed by your debtor. Explained it as simply as possible. If you don’t already understand what we’re talking about, then you should think about whether you need it...

#4

But I still don’t understand what factoring is. In general, it is understandable, but somehow not completely. Simple words cannot explain such things in my opinion...

#3

Thanks for the educational material! Thanks to you, I finally understood the concept of factoring! Thank you again!))

#2

Lenders and bank employees deliberately came up with all sorts of complex concepts and terms. For example, take factoring, what kind of factoring is it, where does it come from? Where? For what? Not only that, there are also several types... oh-oh-oh friends...

#1

Thank you very much for your detailed answer on the topic of factoring. It is difficult to explain such concepts in simple words even to a person close to financial activities. You succeed, for which I am very grateful! All the best to you!

Speaking about factoring, what it is and how to describe it in simple words, we end up with the following definition: a set of financial services for deferred payment, which are agreed upon between manufacturers and traders. That is, the supplier sells the goods to the buyer and does not require immediate payment for it. Factoring operations are tools that allow an enterprise to obtain financing from a bank against receivables.

Economists believe that we are talking about the procedure for trading debts, and the discovery of factoring is attributed by historians to the times of antiquity.

Let's move on to a description of factoring, based on expert ideas about what it is.

Factoring financing mechanism

The scheme of operation of such a financial mechanism is curious. After all, many companies use it to pay their counterparties. Here, no collateral is practiced, and limits are set differently.

The factoring scheme looks like this - the supplier of the factoring company acts in such a way that services and goods are provided to the buyer with a deferred payment, and in the meantime, documents confirming the delivery (waybills, invoices) are transferred to the bank.
Then the supplier receives money from the bank (up to 9/10 of the delivery amount).

And when the deferment period ends, the bank receives the entire amount from the buyer and transfers the remaining funds, minus its commission, to the supplier company.

In this case, the factor is the bank itself, which has the entire amount of necessary information and its own methodology for assessing the solvency of the company’s counterparties.

If companies establish cooperation with the maximum number of debtors, especially by providing them with deferred payments, then all produced volumes will be quickly and correctly sold.

Factoring services have proven to be a successful scheme, and this allows enterprises to optimally combine their financial prospects, built on the effective management of cash flows, with the holistic development of production.

Types of factoring

Depending on the potential of the clientele, there are the following types of factoring:
• open or confidential (closed);
• domestic or international;
• with and without the right of recourse.

With regression

The regressive type of factoring is the most relevant and is more popular than other types. The benefits of factoring with recourse are obvious specifically for clients, because this is basic insurance in the event that the debtor (client’s buyer) for some reason refuses to pay or delays it beyond the deadline - then the client returns the money to the company.

The main and significant advantage of factoring with recourse is a good increase in sales, because under these schemes any banking organizations will agree to work with it, and even with collateral. The money is immediately credited to the account and is already working for profit, which can only be interrupted by the fact that the debtor is declared insolvent.

No recourse

With non-recourse factoring, as experts understand it, the risk of non-payment of debts is assumed by the factoring organization. The risk of non-payment is immediately included in the cost of the service, so non-recourse factoring costs the seller more than recourse factoring. The factor conducts a thorough analysis and determines the debtor's solvency. As a result, the client is guaranteed full payment.

A convenient opportunity is provided by the “Guarantee for Buyers” service.

Additionally, it allows you to:
• work with customers on deferred payment terms;
• provide preferential payment terms to customers;
• start working with new buyers (by checking the solvency of potential buyers, as well as their ability to sell a given volume of goods);
• entering new regions (guaranteeing new customers in new markets and territories).

Relationships of this type carry less risk for the factor, and the commission for services, of course, is significantly lower: they are affordable.

How the guarantee scheme works:
• Shipment of products.
• Transfer of information on deliveries to approved buyers.
• Issuing a guarantee for buyers for 90% of the delivery amount.

If the buyer does not fulfill his obligations to pay for the delivery, it is necessary to transfer the original documents that confirm the validity of the monetary claims against the buyer.
Payment under the guarantee is carried out within 4 months.

Purchasing

Another interesting type of factoring service is called purchasing (reverse).
The term “buyer factoring” is sometimes used because it accurately expresses its essence. A buyer (debtor) comes to the factor and is interested in receiving goods on a deferred basis.
He resorts to the procurement type if he is interested in a transaction, but does not currently have the necessary funds, and the supplier does not want to cooperate without an advance payment.

International

International factoring is perhaps the only real financial instrument that allows deferred payment for international transactions. The supplier and buyer here are residents of different states. But the rules of ordinary trading do not apply here.

International factors are involved in servicing foreign economic transactions, which are characterized by:
• long-term, or even indefinite, action;
• regularity of deliveries;
• trend towards increasing trade turnover.

Open and closed

In the diverse gradation of factoring transactions “for three”, it is worth paying attention to the open and closed types of this pool of financial services.

With the open option, which is especially popular abroad, the debtor, having been officially notified in writing of the presence of the factor, transfers funds to his account. Moreover, sometimes a factor is not included in a tripartite transaction without the consent of the debtor. Closed factoring is an operation carried out only between the lender (seller) and the bank (or other factor). But the purchaser of services (goods) does not know about this.

The difference between obtaining a factoring agreement from a bank and a factoring company

Many entrepreneurs, for whom the services of a financial intermediary have suddenly become vital, are faced with a choice of whom to turn to - a bank or a specialized company. Today, both types of players are very successful in this market, but there is still a difference in the provision of factoring services.

First, let's take a closer look at the question - what is factoring in a bank? Many users note that banks have such an important quality as reliability; they also emphasize the versatility of services.

After all, to provide this financial service, businessmen need others, and banks that do not have restrictions in this sense are still a better option. A logical addition to factoring services is that banks offer settlement services.

But factoring companies have other advantages, the first of which is efficiency, which is ensured by special business processes. But in a bank, the speed of implementation of operations is reduced due to the workload of employees with administrative issues in working with other departments of the same bank.

With a regular loan, the agreement is limited in duration, but with this deal, the loan is unlimited.

The conclusion suggests itself: specialized companies are constantly improving their well-established technologies, but in banks they are more conservative, which reduces the quality of factoring services, and the volume too. Along with the mentioned efficiency, companies are more flexible in relation to the client.

The company's specialists have excellent knowledge of product features, and this allows them to take into account the needs of customers and adapt the product specifically for them.

In banks, a small staff and strictly regulated product parameters do not allow an individual approach to each client.

Conditions of registration

A factoring agreement, or what might be more clearly called an agreement to transfer the right to a debt, is, in simple words, the main legal document that fixes the relationship between the intermediary and the supplier (and, possibly, the recipient).

The law for this document provided for a number of nuances that are understandable at the expert level, but the main ones are the conditions of factoring regarding financing and the monetary claim assigned in order to obtain financing.

Mandatory points should not be forgotten:
• on what conditions funding is provided and in what order it is carried out;
• description of the procedure for transferring rights to debt obligations;
• the cost of the transaction and the procedure for transferring settlement funds.

Calculation example

Let's give an example of calculation for factoring.

On the 20th of the month, the wholesale supplier signed an agreement for the supply of goods with the Buyer in the amount of 500,000 rubles with payment due by the 30th of the same month.

The wholesale supplier urgently needs money, so on the 25th he enters into an agreement with the Factor, transferring to him the right of monetary claim against the Buyer.

On the 26th, the factor pays the Wholesale supplier 7/10 of the required amount - 350,000 rubles (this can be designated as a factoring loan).

On the 30th, the Factor issues a payment request to the Buyer.

In the Russian Federation, where banking institutions are the main factors in these operations, the volume of factoring turnover barely reaches half a percent of gross domestic product, while in the West it can sometimes amount to 1/5 of GDP.

On the 31st, the Buyer transfers 500,000 rubles to the Factor.

Of this, the Factor keeps the commission for himself, and transfers the rest to the Wholesale Supplier.

If, for example, we are talking about a commission of 3%, then this amounts to 15,000 rubles. That is, the Wholesale Supplier will receive from the Factor the last transfer in the amount of 135,000 rubles, and the total amount received by the Wholesale Supplier will be equal to 485,000 rubles.

Having lost only 3% of the amount on commission, using the factoring procedure, making simple entries in his accounting department, the Wholesale supplier received 70% of the entire payment at the right time.

This calculation of factoring is the simplest example, indicating the simplicity of the very scheme of relations along the supplier-factor-buyer line.

Watch a video about the concept of factoring.

How does factoring differ from forfeiting and assignment?

Very often, factoring and forfaiting are considered as similar mechanisms, but the differences between them are quite noticeable. The difference between financial transactions lies in the specifics of their implementation.

Forfaiting, which is important, is, in simple terms, a very long operation that can last several years, while factoring takes a maximum of six months. The forfaiter, who pays the entire amount at once, is ready to risk everything (even political interference), and the factor, which does not pay more than 90%, shifts part of the responsibility to the client, so that, if something happens, he can return at least some of his funds.

Forfaiting assets may well be sold to third parties, but factoring assets cannot.

The general purpose of additional financing does not negate the significant differences between factoring and. The first operation is voluntary, and the assignment can be determined by law.

The assignment does not have the nature of a restriction on property, and factoring involves the transfer of cash receivables.

Pros and cons of factoring

You can always calmly resolve financial problems without harm, without changing the rhythm of current production, using an effective and modern method - financing through a factor. However, as with any transactions and agreements, factoring has its pros and cons. The main advantages are to create favorable conditions for the debt to be repaid.

Enterprises that resort to factoring can overcome the financial crisis. The disadvantages of factoring are the complex terms of the contract, and by risking too high an interest rate, you can lose profit from the delivery. In addition, the documentation is not easy to complete.

Some positive and negative sides.

Watch a video about what factoring is in simple words:

Factoring can rightly be called the driving force of trade. It is not a luxury, but a means that stimulates the growth of production and sales - increasing the competitiveness of goods and expanding the circle of partners, providing them with favorable payment terms. This is a powerful financial tool with which companies' businesses can very quickly increase their sales.