For enterprise functioning it is required to pay for exposed customer bills within a reasonable period of time. For example, if a group of friends are going to the movie and one of them buy tickets it is assumed that others will give him the money for the tickets in a few days. In business these things are done differently. Here, the terms of payment will probably be 30-60 and sometimes even 90 or 120 days. Due documents you already have that sum of money on your account, but actually they do not exist and you cannot buy necessary raw materials, pay your suppliers, salaries or taxes. In order not to wait for the money for several months here comes factoring.
Accounts transfer, or factoring, gives the company an opportunity to manage its finances better and more efficiently, as well as to create liquidity buffer for daily activities. For example, if a small producer receives a big order, but the customer is willing to pay only after 60 days, for a small company it will be too long to seamlessly continue their daily business activities. In such a case factoring is very useful as it helps the company to function during this period.
Unlike credit, factoring, as a rule, does not require collateral. Consequently, the company does not burden its property, and, if necessary, can use it as collateral for any other larger investment loan.
Factoring is good for companies, which in addition to financing accounts want to transfer some administrative work. Some financial companies with factoring offer assessment of credit risk of customers, account administration, services revenue and collection of debts.
Buying accounts – more simple and flexible form of factoring. In case of purchase of accounts, the number of funded accounts is rather small, but the average amount of one account is large. This is commonly used in the case of a temporary need for external financing. One-time purchase of accounts is used in the case when there is an urgent need of available funds, for example, you need money for other projects.
Buying accounts – more simple and flexible form of factoring. In case of purchase of accounts, the number of funded accounts is rather small, but the average amount of one account is large. This is commonly used in the case of a temporary need for external financing. One-time purchase of accounts is used in the case when there is an urgent need of available funds, for example, you need money for other projects.
In the case of foreign business it is just as important to know the target market and check the foreign buyer, but it is not very easy to do, being in Estonia. In this case, the advantages have those financial companies that operate in many countries with the help of related companies or collaborative networks. Such service providers of factoring are always aware of the dangers that exist on a particular market, and information many possible foreign partners to help them to avoid credit risks in advance.