What are factoring operations

Factoring is a complex of services related to the provision of deferred payments for buyers of goods and services. Today factoring operations are becoming increasingly popular among entrepreneurs.

The concept of factoring operations and their advantages

Factoring operations are represented by a range of services that are related to the provision of deferred payment. This is a kind of intermediary activity in which the role of an intermediary belongs to a factoring company or a bank. This company for a predetermined fee receives the right to claim and credit to the seller’s account the amounts of money that are due to them from buyers.

The scheme of work within the framework of factoring operations is as follows. The seller ships the goods to the buyer and transfers the documents accompanying the delivery to the factoring company (invoice, waybill). She pays 90% of the cost of delivered goods. And after receiving the debt from the buyer, it transfers the remaining funds minus its own commission.

The popularity of factoring services is due to the fact that the supplier promptly receives money for the shipped goods and does not have a working capital deficit. Moreover, the seller has the opportunity to reduce the risks associated with the delay. In particular, such as currency fluctuations, fraud, non-payment of goods, inflation, etc. Factoring companies also carry out professional work with debt, and can also take appropriate measures to return the debt. They check the business reputation of buyers and monitor debt status.

Classification of factoring operations

Factoring operations can be classified on various grounds. From the point of view of the region of the transaction, they are divided into internal, when all parties to the transaction are in one country and international, when one of the participants is a resident of another country.

There are also open and closed factoring operations. In the latter case, the buyer does not know about the participation of the factoring company in the transaction. Open factoring operations are not confidential.

You can distinguish operations with or without recourse. In the first case, the factoring company has the right to claim compensation from the creditor in case of buyer's refusal to pay. Contracts without recourse are practically non-existent.