What is factoring?
Posted: Tue Dec 24, 2024 9:31 am
Factoring is a chance to improve the company's financial liquidity. It is worth using this solution to have cash at your disposal without waiting for the client to pay the invoice. What is worth knowing about factoring?
The company must constantly develop, which is why funds are needed for investments and replenishing stock levels. Unfortunately, when selling with deferred payment, we must reckon with the fact that this affects our financial liquidity. It may turn out that we will not have enough funds to finance the company's operations, because the money will be frozen in unpaid invoices. In such a situation, it is worth using the factoring service. What does it involve?
What is factoring?
Factoring (full name – receivables factoring) is the sale of invoices in czech republic whatsapp database for cash. Instead of waiting for the contractor to pay the invoice, you can have the money at your disposal immediately. Factoring is worth considering primarily in a situation where a long payment term (e.g. 60 or 90 days) means that the company's money is frozen, which makes it difficult to repay your own liabilities or make new investments. In such a situation, you should contact a factoring company or a bank that provides such services. The factor, i.e. the institution that provides factoring, buys out the factoree's, i.e. the entrepreneur, receivables, paying cash in return. Depending on the type of factoring and the specific factoring agreement, this happens within a few days, and often a few hours. You can learn more about factoring at pragmago.pl .
What types of factoring do we distinguish?
Depending on the selected criteria, we distinguish several types of factoring. Considering the scope of risk, factoring is divided into:
full factoring – in this case, the factor takes full responsibility for the receivable. The entrepreneur sells the invoice, receives the money and for him the matter is over. The contractor receives an account number to which he must transfer the money to the factoring company. Taking over the risk of the recipient's insolvency means that in the event of problems with solvency, the factor deals with debt collection.
incomplete factoring – in this case, the entrepreneur must ensure that the contractor pays the invoice on time. Failure to pay will result in the factorer having to return the money received from the factoring company.
mixed factoring – this is a combination of full and partial factoring. The factoring company is responsible for the insolvency of the entrepreneur's contractors up to the amount resulting from the factoring agreement. After exceeding this amount, the liability passes to the entrepreneur.
It is also worth noting the division of factoring by territory. We distinguish:
domestic factoring – only entrepreneurs registered and operating in Poland can use it.
international factoring – intended for companies doing business abroad. In the case of international factoring, we distinguish: export factoring (for companies selling their goods abroad) and import factoring (for companies importing goods from abroad to Poland).
Who is the factoring service intended for?
Factoring is available to all entrepreneurs who want to have cash immediately at their disposal, without waiting for the invoice to be paid by the contractor. This is an interesting option, especially for small and medium-sized companies and freelancers, who may lose financial liquidity due to invoices with deferred payment. Factoring allows you to quickly recover money frozen in invoices and use it for any purpose. Factoring also gives you a competitive advantage, because it allows you to offer contractors longer payment terms. It is worth knowing that factoring does not reduce creditworthiness and allows you to deduct financing costs from income tax and VAT.
The company must constantly develop, which is why funds are needed for investments and replenishing stock levels. Unfortunately, when selling with deferred payment, we must reckon with the fact that this affects our financial liquidity. It may turn out that we will not have enough funds to finance the company's operations, because the money will be frozen in unpaid invoices. In such a situation, it is worth using the factoring service. What does it involve?
What is factoring?
Factoring (full name – receivables factoring) is the sale of invoices in czech republic whatsapp database for cash. Instead of waiting for the contractor to pay the invoice, you can have the money at your disposal immediately. Factoring is worth considering primarily in a situation where a long payment term (e.g. 60 or 90 days) means that the company's money is frozen, which makes it difficult to repay your own liabilities or make new investments. In such a situation, you should contact a factoring company or a bank that provides such services. The factor, i.e. the institution that provides factoring, buys out the factoree's, i.e. the entrepreneur, receivables, paying cash in return. Depending on the type of factoring and the specific factoring agreement, this happens within a few days, and often a few hours. You can learn more about factoring at pragmago.pl .
What types of factoring do we distinguish?
Depending on the selected criteria, we distinguish several types of factoring. Considering the scope of risk, factoring is divided into:
full factoring – in this case, the factor takes full responsibility for the receivable. The entrepreneur sells the invoice, receives the money and for him the matter is over. The contractor receives an account number to which he must transfer the money to the factoring company. Taking over the risk of the recipient's insolvency means that in the event of problems with solvency, the factor deals with debt collection.
incomplete factoring – in this case, the entrepreneur must ensure that the contractor pays the invoice on time. Failure to pay will result in the factorer having to return the money received from the factoring company.
mixed factoring – this is a combination of full and partial factoring. The factoring company is responsible for the insolvency of the entrepreneur's contractors up to the amount resulting from the factoring agreement. After exceeding this amount, the liability passes to the entrepreneur.
It is also worth noting the division of factoring by territory. We distinguish:
domestic factoring – only entrepreneurs registered and operating in Poland can use it.
international factoring – intended for companies doing business abroad. In the case of international factoring, we distinguish: export factoring (for companies selling their goods abroad) and import factoring (for companies importing goods from abroad to Poland).
Who is the factoring service intended for?
Factoring is available to all entrepreneurs who want to have cash immediately at their disposal, without waiting for the invoice to be paid by the contractor. This is an interesting option, especially for small and medium-sized companies and freelancers, who may lose financial liquidity due to invoices with deferred payment. Factoring allows you to quickly recover money frozen in invoices and use it for any purpose. Factoring also gives you a competitive advantage, because it allows you to offer contractors longer payment terms. It is worth knowing that factoring does not reduce creditworthiness and allows you to deduct financing costs from income tax and VAT.