How does factoring work?
The bank buys short-term claims you have from your customers/debtors on the basis of documents proving the existence of claims (invoices, delivery notes, temporary situations, etc.).
The procedure is very simple. A factoring contract is concluded, by which you sell to the Bank your receivables from the debtor, resulting from the delivery of goods and/or the performance of services, and you receive the money immediately.
You can implement the factoring service in several ways:
- Factoring with a discount - financing is carried out by immediately paying the total value of the invoice minus the discount to your account,
- Factoring with an advance payment - the agreed amount of the advance payment (which usually amounts to 75% - 95% of the invoice value), minus the factoring fee, is immediately paid to your account. The remaining part of the invoice value, minus the factoring interest calculated on the amount of the advance payment, is paid to your account after the invoice is due, i.e. the payment of obligations by the debtor.
- The discount of overdue installments on payment cards of Banca Intesa is an "advance payment" (discounting) of overdue installments based on installment sales with payment cards issued by the bank.
The factoring sector can realize loans on the basis of receivables, assigned receivables, leases, pledges, promissory notes, namely:
- Credit on the basis of assigned claims: represents placement where the means of collection can be on the basis of cessions/pledge of claims/valuated promissory notes.
- Credit based on receivables: represents placement given on the basis of expected inflows from existing or future receivables.
By advanced payment of a contracted amount of funds in a very short period, Your company’s liquidity is significantly improved, which enables You to settle Your obligations to the suppliers earlier and thus use the possible discounts they offer.
By turning short–term claims into liquid funds, factoring as a way of financing does not burden your company’s balance.
Considering that the bank takes upon itself to perform all activities connected with book–keeping entries and tracking the due date of invoices, You considerably save in time and expenses.
Debtors / Buyers are a lot more disciplined when settling their obligations to the claims of a strong bank.
Through claims transfer, the collection risk reduces and liquidity increases, which enables you to offer your buyers longer payment deadlines and thus increase your sale.