What is factoring: a simple and detailed explanation, a diagram

Factoring is banking service for suppliers working on the terms of deferred payment. Factoring transactions allow creditors not to save accounts receivable in the short term and plan cash flows, and the bank - to make a profit.

In this article, we will give the basic definitions and try to visually understand this scheme.

Basic concepts

Factoring is a set of financial services for the supplier in exchange for the assignment of the debtor's debt for the shipment of products or the provision of any services. In other words, factoring can be classified as financing against the assignment of a monetary claim, or defined as sales credit for a supplier.

A factoring organization or a bank pays its client money for sold products instead of the buyer, and he transfers the right to claim receivables to the agent. As a result, both parties get their benefit: the creditor gets real money, and the bank earns on operations - part of the debtor's debt plus a commission.

Participants in a factoring operation are three actors: an agent (or factor) - this role is performed by a bank or a specialized firm, the supplier (or creditor) and the buyer (or debtor).

The factor provides credit to the client by buying back receivables from him, usually short-term. They sign an agreement between themselves, according to which the supplier provides invoices and other documents to the factor. Documents are provided as requirements for the buyer are formed and confirm the shipment of goods, its amount and the occurrence of receivables. The factor discounts the confirmed amount and transfers part of the money to the supplier. The amount is most often limited to 90%. When the buyer makes the payment, the factor pays the rest of the amount to the lender, having previously deducted interest for the loan and a commission for services.

Typically, the factor takes over issues related to the management of receivables: accounting and analysis, monitoring the solvency of the buyer. Factoring companies employ only those contractors with whom the supplier is able to confirm relations with firm contractual relations and decent statistics of shipments and payments, since factoring is considered a highly profitable, but at the same time very risky operation.

For more information about this term, you can see the following video:

Its types

Factoring operations are classified according to several criteria:

• According to the type of contract open and closed. Open factoring involves notifying the buyer that the receivable has been assigned to the factor. All three parties are involved in the settlement, and the debtor pays his debt to the factor. Closed factoring assumes that the seller himself conducts settlements with the debtor. In the future, the supplier must transfer money to the factor's account. It turns out that the buyer will not receive notice of the contractual relationship between the other two parties.
• According to the residence of the parties are divided internal and external. If the parties to the relationship are residents of the same country, then the operation is classified as internal factoring if the contract was concluded by business representatives different countries, then - external or international. In international transactions, there may be two factors, then such factoring is mutual, if there is one factor - direct.
• Payment terms include factoring with and without regression. Carrying out a recourse transaction means that only the risk of late payment passes to the factor, that is, after a set time, he has the right to demand that the supplier return the money he received earlier. A non-recourse operation means that all risks are transferred to the agent, and he has the right to demand payment only from the buyer.
• According to the period of occurrence of the requirement, they distinguish real(when debt already exists) and consensual factoring (when the debt arises in the future).

Factoring transactions can also be classified depending on the party that initiated such calculations. Typically, this party is the supplier. There is also reverse factoring, when the buyer himself becomes the initiator.

Difference from forfaiting

Factoring is often confused with forfaiting, which is also a specific type of trade lending. Forfeiting involves an agent/forfaitor buying from a lender the debt of a commercial nature of its borrower.

Among the main differences are:

• the main use of forfaiting is the execution of foreign trade operations between business representatives from different countries;
• the absence of the possibility of recourse in forfaiting, that is, all risks under the obligation are transferred to the forfaitor, who in this case no longer has the right to turn to the supplier;
• forfaiting is characterized by long-term liabilities in large sums, the use of factoring is beneficial in the case of short-term debts with smaller amounts;
• the forfeiting process necessarily occurs with the participation of the forfaitor;
• with forfeiting, the entire amount is paid, with factoring, a part of the total amount is frozen.

Scheme of work in Russia

Factoring services in Russia have been developed relatively recently, so the area of ​​such financing in our country is quite young. Attempts to introduce factoring operations were made back in the late 80s, but the lack of methodological developments and international experience during the Soviet era led to the fact that the essence of these services was completely distorted. Factoring has been further developed since the mid-90s, the Association of Factoring Companies was established only in 2007.

The main players include:

• Promsvyazbank and its subsidiary PSB-Factoring.
  The bank has been working with similar transactions since 2002, the range of services is quite wide: factoring with and without recourse, domestic and international, both for export and import. Since 2008, it has been the market leader in terms of transaction volumes. According to the results of 2013, it was recognized as the market leader in the segments of external factoring and services for small and medium-sized businesses.
• Russian factoring company.
  Succeeds in the market financial services since 1993 (previously worked under the name "Fintech", transformed into its current form since 2008). It is one of the leaders in terms of volume and number of transactions. It offers services both for suppliers (for supply chains, for production of products, for sales growth) and for buyers (for the purchase of raw materials and goods, for expanding network retail, reverse type factoring).
• VTB Factoring.
  Subsidiary of one of the largest banks in Russia. It offers services in two directions: internal factoring with recourse and factoring for suppliers with financing up to 95%. In 2014, he signed the first contract in Russia for factoring license agreements with the Asteros group (software supply for 370 million rubles).
• Factoring company Life.
  Specializes in express factoring for small/medium businesses. Provides corporate factoring services, including without recourse. Emphasis is placed on an integrated approach and information support.
• Sberbank.
  Provides services for small businesses relatively recently. The main advantage is a large branch network.

Services are also provided by other banks and organizations, among the leaders it should also be noted Alfa-Bank, Petrocommerce Bank and National Factoring Company. Business representatives can easily find the right offer for their situation.

Example of a factoring operation

LLC "Computer", which supplies computer technology and components, on September 1 signed a contract with LLC "Customer" for the supply of equipment in the amount of 1.2 million rubles. subject to payment within 30 days from the date of shipment.

On September 5, Computer LLC shipped goods according to the specification for the contract. LLC "Computer" experienced a shortage in September Money for the purchase of the following batches of equipment, therefore, he turned to Factor Bank and signed an agreement with him for the provision of factoring services, according to which he cedes the right to claim against LLC Customer.

The terms of the agreement with Factor LLC: financing in the amount of 75% of the debt amount, agent commission in the amount of 8%. LLC "Computer" provides the agent with an invoice for shipment and other documents confirming the receivables of LLC "Customer". On September 10, Factor Bank finances its client Computer LLC in the amount of 75% agreed upon under the agreement: transfers 900,000 rubles to his account.

At the end of the deferred payment, the bank submits a payment request to OOO Zakazchik, the company transfers the entire amount of the debt to the bank: 1.2 million rubles. The bank withholds its commission in the amount of 8%: 96,000 rubles. The balance is transferred to Computer LLC: 204,000 rubles. Thus, Computer LLC receives as a result 1,104,000 rubles, and the bank makes a profit in the amount of a commission of 96,000 rubles.

Factoring is a complex of services, the most important link of which is the assignment (sale) of the company's receivables.

Factoring in simple terms

Let us analyze the above definition in more detail and explain it in simple accessible words. The essence of factoring is very simple, if we discard specific terms, it is not difficult to understand it.

The debts of some companies to others is a normal and widespread phenomenon. It is debts in favor of a particular company that are called its receivables. How does it arise?

For example, a wholesaler can ship a consignment of goods to the buyer, and the buyer pays off with him not immediately, but after a week (for one reason or another). Or: a consulting firm conducted an analysis of the business of another organization, presented its recommendations, fully fulfilling the terms of the contract. The client firm, under the same contract, must make payment within 10 days (not instantly).

Obviously, delays in payment seriously interfere with business, reducing its sustainability and ability to develop. Returning to myself a simple example- trade - until the buyer has paid the invoice issued by the wholesaler, the seller cannot purchase a new batch of goods to serve other counterparties.

The essence of factoring lies precisely in the elimination of these delays. A third party (a bank, a specialized factoring company) redeems the obligations of the buyer, providing the seller with "live" money immediately after the sale of the goods. Of course, this is not done for free - however, the possibility of uninterrupted functioning of the business usually makes it easy to "recapture" the commission of the factor.

Factoring mechanism

The mechanism is quite simple, difficulties in understanding arise due to the need to have a good understanding of the roles of the participants in the transaction.

Here are the usual steps in the process.

1. The client of the factoring company provides services or provides the buyer with goods and services with a deferred payment.
2. The client (seller) transfers to the factor documents confirming the fact of the appearance of receivables.
3. The factor covers most of the debt (up to 95%).
4. The debtor makes payment for goods or services.
5. The lender and the factor make final settlements between themselves: the bank receives back its money with an additional commission for services, the seller receives the rest of the funds due to him (5 - 30%).

For final clarity, check out the diagrams.

Factoring scheme

This is the simplest option - the closed type. The factor makes settlements only with the creditor.

In a more complex version - open - there are relationships between all three participants. The buyer pays already with the bank - that is, the debt is completely usused by the factor.

The remaining steps are similar to the first scheme. Of course, the differences in the workflow are quite significant.

Almost every business entity, studying the possibilities of increasing working capital of his company, turned to his bank with a request to explain what factoring is. Very often, attempts to independently deal with this issue for a person without a higher economic education end in a complete fiasco.

What is factoring - the essence

In specialized literature, factoring is described using complex economic terminology, which does not allow to capture the main essence, forcing the reader to study such concepts as assignment of claims, collection of receivables, discounting documents, factor, etc. At the same time, the presented service of financial and credit institutions is in high demand among representatives of small and medium-sized businesses. In some sectors of the economy factoring operations are the most the best option sales of products with deferred payment, when the seller cannot wait long for money for his goods, and the buyer does not have enough working capital to quickly pay for it.

But the participants in this operation often simply do not know who to turn to in order to mutually this problem. This article explains what factoring is. in simple words, and enables entrepreneurs to understand how this service in demand in their field. This information is of interest not only to businessmen and bankers, it will be useful to ordinary readers interested in lending and the formation of the retail price of consumer goods.

The essence and stages of factoring

The lack of working capital among representatives of small and medium-sized businesses forces them to constantly look for alternative sources of financing for their current activities. Banks, as a rule, in such situations are not willing to provide loans, by their standards the amounts are small, and the costs of obtaining such loans are decent, as a result, credit operation becomes unprofitable for either the lender or the firm that lends the money.

Let's take a real-life example of a situation where a company does not have enough working capital. The company sells food products. The main buyers are large retail chains, large supermarkets and shops, which most often take products for sale or with a long delay in payment (from 14 to 60 days). Having shipped products to 50 supermarkets, the seller actually "pulled" a substantial amount out of circulation (if each buyer received products for at least $300, the total amount will be $15,000!) suppliers, make payments to the budget, ship goods to other stores.

Where to get money? Or ask all contractors to wait a month and a half, when the stores pay off? Well, this is already from the realm of fantasy, this is not how business is done. Fortunately, there is a way out - this is factoring. In the economic literature, most often, you can find its definition as a set of credit and commission-intermediary operations.

In practice, it looks like this. The company ships the product, the buyer receives required item, and the bank pays part of its cost to the supplier, as a rule, 70-90%, and receives the right to the entire amount of the debt. After the debtor company pays off the bank, the seller company will receive the rest of the money, minus commissions and interest on the loan.

All participants in the operation get what they wanted:

the buyer of the goods is brought the necessary products on time, and he receives the right to a deferred payment;

the bank earns money (interest on the loan and commissions);

the seller uninterruptedly sells his products and receives most of the payment for it upon shipment, in addition, he is provided with payment guarantees and information about the financial condition of the counterparty firm.

After analyzing what factoring is, we can conclude that this is a specific credit operation in which three parties take part: a bank or a factor company, a company that sells products and a company that buys goods, each of the parties realizes its goals with the help of other participants deals. The bank pays for part of the product and receives all rights to it, the seller resumes working capital and can continue to work, the buyer receives the right product and the right to defer payment.

Factoring services can be divided into three stages:

preparatory;

preparation of the necessary documentation;

control over the operation.

At the first stage, representatives of the factoring department of the bank conduct a thorough study of both the client himself and his debtors. A potential client must prepare complete information about their activities so that bank employees can decide on the possibility of factoring services. Everything is studied: statutory documents, contracts with counterparties, an analysis of the financial condition of the company and the level of payment discipline of debtors is carried out. Late payment, which does not correspond to the terms specified in the contract, may be the reason for refusal to cooperate with an unscrupulous debtor.

After a detailed study of the documents and an interview conducted by employees of the factoring department, the potential client is checked by the legal department and the bank's security service. Their task is to verify the veracity of the information received, as well as to verify its compliance with legal norms and requirements of the legislation of the Russian Federation. After all departments give the go-ahead for cooperation, an agreement is signed between the bank and the seller company, which discusses issues and nuances common to all factoring operations: details of the participants in the transaction, rights and obligations of the parties, force majeure, cost of services , document validity period, etc.

Many readers are interested in what a factoring company is. Without going into details, we can say that this is a legal entity operating in the financial and credit sector of the economy and providing factoring services. Quite often, banks create separate companies for these purposes, many of which work exclusively with documentation in in electronic format. This allows you to reduce the cost of providing services and increase the amount of profit received.

At the second stage, which begins with the signing of the above agreement, additional agreements are drawn up to it. That is, each document defines the mechanism for working with a specific debtor. In order for readers to understand the essence of this stage, we present real example. The seller company shipped car tires to its client in the amount of 500 thousand rubles, which the buyer must pay in 30 calendar days.

The factoring company will be provided to the bank with: an invoice confirming the fact of receipt of the tires, an agreement between the seller and the buyer, which confirms the terms of payment, as well as an additional agreement to the factoring agreement. The last document indicates the participants in the transaction and their details, the amount of the claim, the amount paid to the seller by the bank (factor), the maturity of the debt and the conditions for closing the transaction.

At the last stage, representatives of the factoring company's bank not only control how the obligations under a particular transaction are fulfilled, but also monitor the general financial condition of the participants in the contractual relationship. At any time, they can ask for the company's balance sheet, copies of reports in tax office, actual balances in the warehouse (if it is provided for by the contract), as well as Bank statements from other financial institutions, if any. Monitoring the fulfillment of the terms of the transaction reduces the risk of adverse situations when the buyer cannot pay for the received products on time, even taking into account a long delay.

Types of factoring

Having analyzed what factoring is, it is necessary to at least briefly consider its main types.

Factoring operations with financing are carried out as follows. The seller company ships the products and submits supporting documents to the bank. An additional agreement is drawn up for this transaction, the factor (bank) transfers 70-90% of the delivery amount to its client, that is, it provides the seller with a loan. When the buyer repays his debt, the bank transfers the rest of the amount to the seller's account, withholding commissions and a loan fee (depending on the terms of the loan).

Factoring without financing. In this case, the task of the bank (factor) after the shipment of the goods is to provide the buyer with an invoice and control the timely receipt of funds. The rights and obligations of the parties in the process of implementing this operation are regulated by an agreement between the seller and the buyer, as well as a document on factoring services, which is signed by representatives of the financial institution and the seller company.

In the economic literature, you can find such terms as internal factoring - when all participants in this transaction are residents of one country and work within its borders, as well as export factoring operations (international factoring). In the latter case, the participants in the transaction are registered in different countries. Typically, the exporter assigns claims to a target factor to a group of its customers who are located in the same country.

Depending on the degree of awareness of the buyer, there are open and confidential or closed factoring. In the first case, representatives of the firm-buyer are informed about all the details of the transaction, sometimes they even sign additional agreements and receive a written message about all the nuances of the transaction. In the second case, the buyer is not informed of anything, the documents are signed only by representatives of the bank / factoring company and the seller.

In case of untimely repayment of the debt for the products received by the buyer company, two scenarios are possible:

in non-recourse factoring, the supplier does not risk anything, and the bank, the factoring company, is obliged within a certain time (according to the contract) to pay the costs of repaying the debt;

if the contract provides for the right of recourse, the bank may demand that the seller repay the loan provided at the beginning of the transaction.

In practice, the latter type of factoring is extremely rare, few companies agree to sign a contract on such terms.

The development of factoring companies in European countries has led to a serious increase in the list of services they provide:

control accounts receivable;

give advice on marketing, price situation in a certain sector of the economy, assist in the preparation of business contracts;

help with transport, storage services, as well as advertising, insurance, legal support for various commercial transactions.

If you tell what factoring is in the west in your own words, then this is a combination of different services for business, from lending to assistance with the transportation of your products. Of course, it is very convenient to work when one company provides a whole range of services, not only facilitating the process of doing business, but also allowing you to significantly reduce the number of employees, which means lowering the payroll. But on the other hand, such a factoring company will have information about the affairs of your company, including topics that strangers should not know about. Therefore, it is always necessary to evaluate all the pros and cons of cooperation with similar companies, which will soon appear in our country.

A detailed analysis of the presented question will help to understand and understand what factoring operations are and for whom they are of interest. Entrepreneurs, after reading the article, will only have to find financial institution which will offer the most Better conditions cooperation.

What is factoring? What is its advantage? What types of factoring are there and how to choose the right factoring company for a beginner?

Good day! Eduard Stembolsky is with you. I have worked as a financier in various domestic companies for more than ten years. Today we will talk about factoring.

My professional profile is receivables optimization. Factoring very often allowed me to avoid cash gaps and normalize cash flow enterprises.

So, if you want your money not to “settle” with counterparties at the most inopportune moment, read on.

1. What is factoring - a complete overview of the concept for beginners

In a narrow sense, factoring is a special format of trade lending. The broader concept of factoring is as follows:

Factoring- this is an unsecured provision of cash (circulating) funds to the supplier in response to the assignment by him of a monetary claim to the buyer (arising at the time of shipment of goods or the provision of services).

The factoring company (factor) becomes the new owner of the rights to demand payment. Important point- the factor receives a "receivable" for which violations of payment terms were not recorded. Otherwise, it would be a collector. And this is a fundamentally different direction of activity!

A broader interpretation of the concept of factoring also includes the processes of assessing and insuring the risks of non-payment, which depend on how reliable the buyer company is.

The history of factoring

The history of factoring originates in the era of antiquity. This, in particular, is evidenced by the origin of the term from the Latin face, literally translated as "one who does".

The basic reason for the formation of the need for factoring is the development of world trade, which assumed a significant time interval between the shipment of products and payment.

In Russia, factoring was developed at the beginning of the 2000s. The main companies-factors are domestic banks. Russian factoring turnover currently does not exceed 0.5% of GDP (in Western economies, this figure ranges from 2% to 20%).

2. Why factoring is needed and what are its main advantages

So, above we figured out what “factoring” is. If we give a definition of factoring in simple words, then it will sound like this:

Factoring- this is the receipt of money by the supplier from the factor in a period that is shorter than that provided for by the contract for the supply of goods.

Most often, the factor immediately pays about 90% of the cost of the goods. The rest of the amount is due after the buyer confirms receipt of the products and the absence of any claims or makes payment.

Of course, the conditions of factoring involve payment for the services of the factor (in the form of a certain commission).

The need for such a scheme may arise in the event of force majeure. Very often, it is cheaper to quickly increase working capital using various factoring schemes than resorting to short-term loans. And in domestic practice, the access of small enterprises to borrowed funds significantly difficult.

But can factoring be initially pledged in financial plans enterprises? The answer is yes. Many companies are forced to resort to factoring, working in a "buyers' market".

Deferred payment acts as competitive advantage, and increasing the turnover of working capital is achieved through factoring.

In domestic practice, factoring is often encountered when registering the supply of goods and services from small firms to giant corporations.

Large legal entities they often show inflexibility in contract work and are ready to cooperate only using some kind of “template” supply agreement.

It is almost impossible to achieve a change in payment terms, this is opposed by the bureaucracy of giant corporations, which does not want to allow a precedent for changing established practices.

Important!

A common problem in this case is the occurrence tax liabilities before receipt of revenue, since sales are recognized upon shipment of goods.

Factoring has several other benefits:

• unlike a loan, it does not require the use of collateral;
• the factoring company actually collects the client's debt;
• The factoring contract is, in a sense, insurance against the risk of non-payment.

The main advantages and disadvantages of factoring are presented in the table below. The analysis was carried out on the basis of a comparison with a bank loan.

3. Main types of factoring and their features

There are many types of factoring depending on the needs of customers.

The main types of factoring are as follows:

• open and closed;
• with recourse and without recourse;
• domestic and international.

Below, I will tell you about each in more detail.

From the point of view of informing the participants of a factoring transaction about its conclusion, there are open and closed (confidential) factoring.

In the first case the buyer receives information that the supplier has entered into an agreement with the factor company. In this case, the invoice is drawn up accordingly (a record is made about the need to transfer funds in favor of the factor).

In the second, means that the payer is not notified that a factoring agreement has been concluded. The debtor transfers funds to the supplier, who, in turn, pays them to the factor.

From the position of risk distribution, there is factoring with recourse and factoring without recourse .

Factoring with recourse , i.e. the right of recourse means that if the debtor violates the terms of the contract, the factor can return the unpaid invoices to the supplier and demand the return of the loan. In real conditions this condition very rarely provided for in contracts.

Factoring without recourse provides that the factor not only assumes the risks of non-payment, but also undertakes to cover all the costs of its client associated with debt collection (including litigation).

From the point of view of the residency of participants in a factoring transaction, there are internal factoring and external (international) .

With internal factoring both the supplier, the buyer and the factor are registered in the same country.

With international factoring the participants in the transaction are residents of different countries. For external factoring, long-term contracts are typical, involving the transfer to the factor of all receivables of a buyer or all buyers-residents of a particular country.

4. How factoring works - 3 stages of factoring

From the perspective of a supplier, a factoring transaction is quite simple. Given the low risks, one of the basic criteria is the prices for the services of the factor company. However, we will consider some of the nuances below. The stages of factoring from the point of view of a factoring company look different.

Stages and scheme of factoring:

Stage 1. Assessment of a potential client

At this stage, the work of a potential client is analyzed. Most attention is paid to financial condition his debtors. This is due to the fact that the main risk of the factor is the buyer's failure to fulfill its obligations.

In the process of this work, information is requested from the supplier:

• about counterparties;
• about conditions of deliveries and payments;
• about violations of contractual obligations.

The factor's security service must verify the accuracy of the data received. Also considered credit rating buyers. If possible, information on the timeliness of repayment of loans received from banks is investigated.

The terms of the supply contract are analyzed for compliance with the terms of other similar contracts concluded on the market. If there are significant deviations, their causes are analyzed (this allows minimizing the likelihood of abuse).

Also, the factor company should assess the likelihood of complaints (claims), investigate similar cases and understand their reasons.

Stage 2. Registration of a factoring transaction

The conclusion of the contract is carried out after the factor decides to service the entire receivables of the client or some part of it.

The contract must include:

• terms and conditions of financing,
• mechanism for transferring rights to receivables,
• cost of services and payment procedure.

At the same time, the factor may decide to insure the risk of non-fulfillment by the buyer of its obligations.

Stage 3. Control of the factoring contract

This is a very important part of the activity of a factoring company.

Work is ongoing in a number of areas:

1. Analysis of the fulfillment by the participants in the transaction of their obligations and formation of claims in case of their violation.
2. Asset Compliance Monitoring involved in the implementation of the factoring agreement, the requirements of the factor, reflected in the agreement.
3. Periodic re-evaluation as a client and its debtors. This is especially true for those enterprises that belong to the problem sectors of national economies.

5. How to choose the right factoring company - 5 tips from an expert

Below I will tell you how to choose the right factoring company that you can trust to work with your receivables.

5 golden tips for beginners:

1. Decide why you need factoring services. If the main task is to solve a problem with a specific counterparty, then a fairly narrow list of services will suit you. Otherwise, look for a factor that will agree to service all your receivables and work with non-standard deliveries. It may cost a little more, but you are guaranteed not to be left without working capital.
2. Don't focus on banks especially if your turnover is small. Unfortunately, domestic bankers can provide services of different quality to large and small clients. Realizing that you can’t earn much on your turnover, they will consider the documents you provide for too long. In this sense, small factoring companies can work much more quickly.
3. Do not be lazy to collect reviews about the company on the World Wide Web. But don't panic if you stumble upon any one customer's negative experiences. The psychology of a person is arranged in such a way that, having remained dissatisfied with the service, he receives a much more powerful motivation to “inherit on the Internet”.
4. Estimate the cost of services. The two main questions in this case are factor commission size and the existence or absence of a commission for late payment by the buyer.
5. Take an interest in the possibility of using electronic document management and electronic signature. In practice, this can speed up the flow of money by several days.

6. Conclusion

So, in this article, we got acquainted with such a tool as factoring, figured out how to use it to improve the process of working capital management and formulated provisions that will help you choose a factoring company for cooperation.

However, when forming, a number of mechanisms can be used that increase the efficiency of the enterprise. Stay tuned for new articles on our website. Over time, we will talk about each of them.

What does the word "factoring" mean? Factoring is an assignment of debt to a third party, performed in order to normalize financial relations and exclusion of late payment for goods, work, services or rights. Successful business management and development is impossible without additional financing. Factoring provides financial support for the current business and provides an opportunity to receive funds before the buyer pays for the delivery. Thanks to this service, the company returns funds to circulation faster, while reducing the percentage of production risks.

Factoring can be called a chain of services necessary for the assignment or transfer of receivables, that is, the debt of one company to another. In simple terms, a factoring company (in particular, a bank) pays the client for his goods or services instead of the buyer (75-90% of the cost), redeems short-term receivables and discounts payment documents. In this case, the intermediary (factor) receives a commission from the debtor's debt.

Factoring is a specific type of lending for goods or services. The convenience for the seller lies in the fact that without his participation, the intermediary collects the debt from the buyer. If the company sells goods in installments, there is no need to wait for the time of its end. Thus, a businessman or a supplier of goods receives real money that allows him to develop and function.

Factoring parties:

• The customer is the supplier of the product (lender).
• Buyer (debtor).
• An intermediary (bank) that provides the seller with real money.

Factoring Benefits

Factoring benefits all parties. Sellers can receive money before the goods or services are sold, and the intermediary has income in the form of a share of the buyer's debt. Thus, the factoring company reduces the risks of all participants in the relationship.

The advantage of factoring is the possibility of debt collection, which allows you to finance working capital. The factoring company bears the risks if it is the insurer of the transaction. The combination of these functions of the factor allows small and medium-sized businesses to operate and develop. This is especially beneficial when small companies fail to get a loan from a bank.

A well-established scheme of communication between the three parties ensures an uninterrupted trading process and contributes to the development of the economy and the market. The supplier receives the money quickly, and no collateral or guarantor is provided, as with lending. The buyer receives the goods, realizing it without delay. The factoring company has a commission from the transaction. The convenience of such a transaction lies in mobility and simplicity, and the benefits are obvious due to flexible terms and low interest rates.

Factoring types:

• Classic type of factoring with recourse. If the goods are sold with a delay, then the factoring company buys out about 90% of the debt. After the expiration of the period, the intermediary has the right to demand from the seller the previously issued funds. In the event of a recourse, the factoring company practically does not risk. This is the best type of relationship with regular customers.
• Factoring without recourse means that the intermediary company independently requires money from the buyer, subject to late payment of invoices. Actual type of factoring when interacting with new customers.
• Domestic factoring includes participants residing in the same country.
• international type factoring relationship involves the participation of parties from different countries. The transaction involves international entities, namely the factor from the supplier and from the buyer.
• Open factoring. The buyer-debtor is notified about the direction of payment to the factoring company, which is noted in the invoice.
• Closed factoring implies secrecy of the transaction. The creditor is not informed about the participation of an intermediary company in the transaction.
• Reverse factoring involves the possibility for the creditor to defer payments on debts or for products received.

The factoring company is obliged to finance, keep accounting, present monetary claims payable and protect against insolvency of debtors. The factoring company can be commercial organization or a bank. Nevsky Bank provides services