Factoring is a mechanism by which a company can accelerate the recovery (conversion to cash) of its account receivable portfolio by discounting their invoices with financial institutions.
- Immediate access to cash resources while THE INVESTOR awaits payment by the debtor.
- Eliminates the need to wait for traditional payment terms (30/60/90 days).
- The risk of the buyers is analyzed, and NOT the financial strength of the contracting company.
- The balance sheet of the company does not show debts incurred, in most cases it is NOT a liability but a sale of current assets.
- Alternatives to traditional loans. Continuous cash flow that does not require periodic payments (such as case of a traditional line of credit /
- Investor provides support services for collection.
ADVANCEMENT OF FUNDS
Access between 80% up to 90% of the invoice amount, the difference is retained until the debtor liquidates the invoice.
The company receives the retained balance, less a commission when the invoice is paid:
RESERVE (–) FINANCIAL COST = BALANCE RETURNED TO COMPANY
a) THE INVESTOR buys the debt and gives the advance to the company.
b) If the debtor does not pay at maturity, the company is responsible for returning 100% of the anticipated funds to THE INVESTOR.
c) Lower Cost since the risk of non-payment (at expiration) falls back on the seller.
d) Ideal when the risk of the buying company is well known.
INVESTOR PROVIDES FUNDING (ADVANCE) -› COMPANY
Company (returns 100% of aplicable advance if Buyer does not pay) -› INVESTOR
Funds flow – factoring WITH RECOURSE
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