What is closed factoring?

Factoring is a set of services that a bank provides to companies that operate on a deferred payment basis. From a company’s point of view, factoring is a concession to receivables.

Types of factoring

Factoring is becoming increasingly popular among entrepreneurs. The advantages are obvious to all participants in the factoring market - the seller receives additional working capital, the buyer receives a deferred payment, the bank receives a commission and the provision of funds. Factoring is regulated in art. 43 Civil Code of the Russian Federation "financing under the assignment of monetary claims."

The cost of confidential factoring services is higher than the cost of open factoring services, as the risks of a factoring company in this case are higher.

Factoring is widely in demand among young dynamic companies that are experiencing a shortage of working capital.

The factoring company lends to the client’s working capital and works with receivables in exchange for a commission. Most often, banks act as an agent, but according to the law, it can be other credit and commercial organizations that have the necessary license. The document flow in factoring is quite simplified - each successive amount of financing is paid when the shipping documents are submitted to the bank. Sometimes factoring companies can take on not only credit functions, but marketing, advertising, accounting, so that the client can focus exclusively on production.

There are several types of factoring:

- open (convention) factoring - in this case, the seller notifies the buyer of the assignment of documents to the factoring company (invoices, accounts, etc.), the buyer transfers the money under a contract directly to the factoring company;

- closed (confidential) factoring is characterized in that the buyer does not know about the assignment of rights to claim his debt to the factoring company;

- factoring with the right of recourse implies that the factoring company may require the creditor to repay her debt in case of refusal of the borrower to pay. In practice, non-recourse contracts are extremely rare.

The closed factoring implementation scheme

Closed factoring is implemented according to the following algorithm:

- the supplier ships the goods on a deferred payment terms;

- the factoring company receives documents from the supplier confirming the shipment of goods (invoices, bills, acts, etc.);

- the factoring company repays the buyer's debt in the amount of up to 90% and gets the right to demand to pay off the buyer's debt in its favor;

- at the end of the contract, the buyer repays the debt to the seller, and he transfers it to the bank;

- the factoring company returns the remaining 10% of the transaction minus the cost of closed factoring services;

If the supplier encounters an unscrupulous buyer who does not fulfill his obligations, he is still obliged to pay the entire amount of the factoring company.