Factoring means services based on the assignment of monetary claims to the Bank against invoices issued by the customer to buyers for goods sold, works performed or services provided.
By factoring agreement the Bank transfers or undertakes to transfer to the customer (buyer) money in return for a monetary claim of the customer related to the selling of goods or services to the third person (buyer), while the customer assigns or undertakes to assign a monetary claim against the buyer to the Bank and to pay a fee fixed in the factoring agreement.
Factoring advantages for a seller:
- possibility to receive financing without providing collateral;
- liquidity of the company increases;
- discipline of buyers to make payments improves;
- cash flow forecasting is facilitated;
- possibility to offer better payment terms to buyers as well as longer deferred payment period;
- possibility to use discounts granted by suppliers for earlier payment.
Factoring advantages for a buyer:
- possibility to receive a longer deferred payment period;
- purchasing power increases without using other financing sources;
- it is easier to attract new suppliers.
