Factoring is the commercial and financial relationship between a seller of business goods or services on credit to a number of domestic or international buyers and the commercial liaison (Factor) that purchases the accounts receivables evidenced through issued invoices, providing credit risk coverage, collection, sales ledger administration and advance payments to a percentage depending on the exact nature of the arrangement between the two parties (Factor and Seller).
Types of Factoring:
- Factoring with recourse
- Factoring without recourse
- Export / ImportFactoring
- Bulk Factoring
- Reverse Factoring
- Collection Only
- Invoice Discounting
According to the factoring contract the factor provides the following services:
A/R LEDGER MANAGEMENT AND FOLLOW-UP
The factor purchases the trade receivable, taking thus the buyers’ accounts onto his books and updates these accounts with all transactions. The seller receives regular reporting on the status of his ledger and therefore is able to be fully informed about the performance of his buyers.
- Savings in personnel costs.
- Reduction of administrative overheads.
Saving management time.
COLLECTION OF A/R
- The seller will be able to focus on the key tasks of production and sales since he outsourced the task of collections to the factor.
- Better collection management means faster payments, which means lower financing costs.
- The seller can use the factor’s high quality collection staff to ensure prompt payments.
Immediate, upon request advance payments of substantial proportion on the value of assigned trade receivables (depending on the nature of the products, value, credit period, number of buyers, number of invoices assigned etc.).
- Balance sheet effect and improved financial ratios as the advance payments generated by the assignment of receivables is a kind of funding different from the traditional banking loan which doesn’t appear in the company’s short-term liabilities but in its current assets as cash.
- Increase working capital to finance expansion.
- More flexible way of funding than conventional bank borrowing: it is geared from the A/R and therefore to the growth in the seller’s sales.
- No loss of equity – no need to seek additional capital from outside shareholders.
- No formal funding limit – funding automatically keeps pace with growth.
CREDIT RISK COVERAGE (in case of without-recourse factoring)
On the financialinability of the debtor to pay invoiced values for which he has received goods or services. If the buyer defaults in his payment- and no dispute is raised in grounds of quality, quantity set-off, warranties or counter-claims- the factor will pay under guarantee (P.U.G.) the seller 100% on the approved A/R.
- Secured payment at least 90 days past the due dates for undisputed and credit covered A/R.
- Minimize losses through bad debts.
- Continuous evaluation of buyers’ creditworthiness.
TO WHOM THESE SERVICES ARE ADDRESSED
- Companies who sell on a repeat basis in international markets.
- Small and medium enterprises (SME’s) but large corporations also who wish not only the flexible and immediate funding but also outsourcing their sales ledger administration and collection of trade receivables to highly specialized outsourcers (factoring companies).
- Corporations planning to sell their trade receivables aiming to accelerate their cash flow and improve their financial structure and image through balance sheet effects, getting rid of their "lazy capital”.
FIVE FACTORS THAT GUARANTEE CREATIVE AND PRODUCTIVE COOPERATION WITH Optima Factors S.A.
- Client centered approach with continuous vision and target to adjust factoring with the needs of each client individually (one to one factoring).
- Knowledge, experienced know-how services.
- Utilization of a highly trained and specialized workforce.
- Dynamic development Bank with a number of branches.
- Sophisticated factoring software and electronic management of receivables.
- The cooperation with Optima Factors S.A. aims to continuously improve the quality of the services provided and offer additional value to your company’s wealth, supported by the competitive conditions, credibility and security of our banking group.
The Factoring company charges
(a) a commission for handling the assigned A/R according to the client’s needs, services provided and commercial conditions (number and quality of buyers, number of invoices, credit period e.g.) and
(b) the interest spread charge, in case of advance payments.
Different companies have different needs therefore the commission and interest charge is based on each company’s requests, commercial status and behavior.