For many market relations factoring is still not well understood, for someone it is a relatively new phenomenon in the domestic economy. But factoring market is rapidly developing.
Before making a decision about applying to a factoring company you should know exactly what you need, that is to analyze the activities of your trading company.
Factoring “works” as follows:
Try to assess all advantages and disadvantages of factoring for your company.
Advantages for the supplier:
- Does not require collateral and guarantees.
- Competitive rates and terms of financing.
- A simple process of obtaining funding.
- The minimum documents package.
- Improved financial performance.
- Ability to offer customers more flexible terms payment for the goods.
In addition, factoring companies carry out not only the funding mission, but also provide the customer with a range of related services:
- insurance risks associated with delayed payment of goods or services;
- collection of debts from the debtor;
- information services;
- consulting documents, the functions of credit management for setting limits, monitoring and receivables.
Assessing the possibility of your company to use factoring, remember, that the size of the down payment, the interest rate and payment for other services of factoring company also depend on the type of factoring. Recourse factoring will cost you less, while non-recourse is more expensive.
Be sure to check the planned agreement with a factoring company on the profitability. Obviously, if the commission payments for the financing of the transaction exceed the trading margin, the cost of this transaction will exceed the revenues from it, which should not be allowed.
It is also important to sign the agreement between the supplier and the factor company for the longer period, which will contribute to the less problems and suspicions of tax services.