Factoring

FACTORING

This work is mainly about the generalities of Factoring.The importance of this work lies on the direct interaction of the services without hiring them. As future professionals is total relevance, be aware of this type of contract and whether it is cost effective to purchase and Factoring services under that parameter to.

Factoring is when a trader sells on credit to time, but realizes he needs money at one time before the deadline agreed with the buyer to have more liquidity. Therefore asks an entity that is responsible for that debt and him on a value less than the quota, but in a shorter period agreed with the buyer. For his part in the buyer does not change anything; pay their fees for the agreed period and the agreed value.

Factoring is a financial transaction in which a business sells its accounts receivable to a third party at a discount.

In "advance" factoring, the business owner sells his receivables in the form of invoice to the factor, who makes an advance of 70-85% of the purchase price of the receivable amount. The factor collects the full amount from the customer in due course and pays the balance amount due to the business owner after deducting his commission and other charges. In "maturity" factoring, the factor makes no immediate advance on the purchased accounts, but sees to it that the customer pays the invoiced amount within the stipulated time i.e. on maturity. However, if the customer fails to make payment within the stipulated time e.g. 30 days, the factor makes payment to the client and proceeds to collect the payment from the customer.

There are three principal parts to an invoice factoring transaction:

• the advance, a percentage of the invoice face value that is paid to the seller at the time of sale

• the reserve, the remainder of the purchase price held until the payment by the account debtor is made

• the discount fee, the cost associated with the transaction which is deducted from the reserve, along with other expenses, upon collection, before the reserve is disbursed to the factor’s client

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