Now it is impossible to imagine a successful business without third-party financing, in the role of which lending is most often (leave an online application) and less often factoring. The main task of factoring is that unlike lending, this service implies financing of the current business, rather than investment activity in general. Officially, a certain complex of financial services is accepted as factoring, the main purpose of which is to transfer or cede an existing receivable of a company.
In this case, receivables are debts of one particular organization to another. Therefore, in simple words, factoring is a kind of lending for already received goods or services. That is, if a company sells its goods in a postponement, it does not necessarily have to wait until it expires. Now let us have a look at the works of the factoring company.
At the same time, this organization has the opportunity to receive its funds for goods immediately after they are received from a factoring agency – an intermediary (most often in this role are credit institutions), and not from the buyer. And all available debt is to be collected by a factor (bank or a separate company) without the direct involvement of the seller. So the factoring company assumes the responsibility to pay all money for the goods in place of the buyer, and the businessman will receive at his disposal real money.
Proceeding from all told, it is easy to draw a conclusion that factoring gives an excellent opportunity to sellers to receive payment for the production or services even before their direct realization to the final buyer.
The parties to factoring are:
- A supplier who is a factor customer, that is, a lender.
- The buyer, that is, the debtor.
- The factoring company itself is an intermediary, which is usually called a factor. This company and takes over the receivables of a particular organization or buyer, while providing real money to the seller.
In simple words, factoring helps the parties to the transaction to remain in their own interests with the least possible risks. That is, the supplier quickly receives its funds, the buyer without any problems sells the goods, and the factor receives a certain commission from the transaction. In addition, the terms of factoring are quite flexible, and the final interest rates are much lower than for other types of lending.
Principle of action of factoring
Modern types of factoring
Factoring is constantly being improved as the modern market develops . Adjusting to modern trends, factoring has acquired more and more varieties and species that can offer their potential customers a huge number of innovative solutions.