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FACTORING

Factoring

Factoring is a standardized tool for financing short-term trade receivables. It is a widely used, fast and very effective tool that allows creditors to quickly collect cash from their receivables before the due date. The main advantages of factoring are speed, insurance against the debtor’s insolvency, high efficiency of financing non-periodic trade and transactions, and generally services related to debt collection and management.
The essence of factoring is the repurchase of your receivable (invoice) before the due date. This step speeds up the payment of the invoice, ie. you usually collect up to 90% of the value of your receivable before the due date. We will pay the remaining part of your funds reduced by the factoring commission after the due date, or after payment of the original invoice by the debtor.

I want factoring with Debt center

The basis of any cooperation is a framework agreement. The contract specifies the type of factoring you want to use (see below), the subject of your activity, the expected amount of receivables, the list of potential debtors to whom the transactions will apply and the specification of the required services related to debt collection.

After the contract is drafted, you issue invoices and deliver the goods/services to customers according to your usual customs. After issuing an invoice and delivering the goods, you will give us the invoice and proof of delivery, or other documents on the performance of the delivery, and then you will immediately collect up to 90% of the receivable. During this step, you will inform us about the status of things, while the administrator specifically assigned to you immediately verifies the financial health of your customer and approves the transaction with subsequent information on the amount of the factoring commission (depending on the amount of the receivable, risk and type of debtor). Depending to the agreement, your customer may or may not be informed about the assignment of the receivable to the factoring company. After the debtor has settled the receivable, you will be informed of the payment and receive the remaining value of the receivable reduced by the factoring commission. Throughout the process, you will be in contact with the assigned administrator, who will provide information about communication with the debtor and his payment at any time. This will all take place very quickly, efficiently and with fully professional service.

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Types of factoring:

Non-recourse factoring (with insurance)

The most common and most widely used type of factoring is non-recourse factoring, i.e. with insurance. This is a form of assignment of a receivable to a factoring company without the possibility of forced return to the original creditor in the event of incomplete performance by the debtor. This is a type of factoring where you receive 90% of the receivable regardless of whether the receivable is paid in the future or not. In the case of non-payment, the receivable is insured by the factoring company, i.e. you are paid the value of almost the entire receivable, while the factoring company claims the amount of the outstanding receivable by the debtor from an insurance company. This is a slightly more expensive but safer way of financing and cooperation for both parties. It is used mostly in situations where the manufacturer supplies and issues invoices to several smaller customers for whom there is a risk of insolvency on the due date.

Recourse factoring

Recourse factoring is a cheaper but riskier form of receivable financing. In recourse factoring, the factoring company pays the client 90% of the finances, for example. If the receivable is paid by the debtor within the due date, the client receives the remaining part of the receivable reduced by the factoring commission. However, if the debtor does not repay the receivable within the due date, the receivable passes back to the original client, and he is obliged to repay the factoring company the full amount of the funds he received, including fees and interest associated with the provision of the funds. Non-recourse factoring is used less frequently, but it is justified for companies supplying for state or multinational companies, where the risk of insolvency is negligible.

Unsuitable types of receivables:

  • Receivables from construction activities subject to a final building approval or handover procedure
  • Receivables for services subject to a high level of complaints or perishables
  • Receivables for health care services
  • Receivables for art
  • Receivables for goods with a price clearly higher than the usual price
  • Receivables without the possibility of assignment (due to restrictions, e.g. in the purchase contract)
  • Receivables with a maturity of over 180 days

Unacceptable debtors:

  • Startups
  • Companies with long-term losses
  • Companies with a short history in the activity concerning the receivable
  • Construction companies with under 10 years of history
  • Companies with a minimum amount of equity
  • Companies in insolvency/liquidation
  • Companies based outside the EU
  • Companies with a hidden owner or unclear ownership structure

If you are interested in our services in the area of debt financing, write us an email, call us, or contact us via the form on our website!

Debt center. We breath life into trade.