Factoring Invoices, The Best Deal You Can Get for that

The Factoring is a means of financing is that our company (“the transferor “) makes an assignment of our portfolio of outstanding loans receivable ( ” debtor “) in favor of an entity (bank, savings bank or specialized entity called ” the factor “) which is in charge of the collection management and that can anticipate, totally or partially, the amount of said invoices, charging you a cost for it depending on the time remaining until the expiration.

What is factoring

Factoring as a means of financing

It is therefore another possibility of financing for companies that is not being sufficiently used by our companies in Spain, especially by SMEs due to the disadvantages that we will see later, However large companies do use this type of service in a massive way. Factoring is used to finance our current assets because with the advance of the outstanding loans without having to wait for the expiration, it inflates a very important liquidity into our treasury, even though this entails certain costs for the company. To Increase cash flow with Alliance invoice factoring this is important.

Other advantages of Factoring

The Factoring also allows us to get rid of the administrative management of our commercial effects of clients pending collection since, from the moment we give this credit to the Factoring entity , they will be the ones who will be responsible only for the collection, not assuming the risk of default (known as “Factoring with recourse” which is usually the most common, unless the company is very large and with a very good credit rating) or in charge of collection and recovery, in case of default (this option is known as “Factoring without recourse”,then, in case they do not charge at maturity, they will assume the risk of default and the currency exchange risk, in case the invoice is issued in foreign currency, in dollars.

Factoring also prevents us from having to take our invoices to a discount since it provides us with a similar financial service in advance of credit, a service that we also obtained with the discount line but this time has more advantages, as we have described higher. Now let’s see the drawbacks.

Therefore, among the most notable disadvantages of Factoring are the following:

  1. It is a service of high financial cost if we compare it with other forms of financing our current assets, such as the discount line or receipt of receipts.
  2. It is a system that if you do not accept the risk of default (Factoring without recourse) does not pay for an SME to implement for its normal commercial traffic, it would only be implemented if it had large clients who pay very late.
  3. The factoring entity can refuse to anticipate the credits according to which clients and thus, unilaterally, can leave us in the lurch without a financing that we had.

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