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Definition:

Factoring is the assignment of the receivables, held to a financial intermediary, on the debts of the company's customers at a price specified in the contract. The financial institution (factoring company) is responsible for the payment of that debt as being the creditor of the client of the firm, while the financial institution will advance the amount of the debt to the company with which he signed the contract.


Features:

Basically, users of factoring companies are as follows:

- Companies that are expanding, and show a rapid development.
- Companies with non-perishable products and the sale of which is repetitive.
- Companies supplying public bodies and governments.
- Companies that do not have a department organized for the management of credit and collections.

Factoring allows you to receive the amount of customer debt, after deducting the agreed financial cost to the factoring company. This funding formula allows for maximum mobilization of the portfolio of receivables and Therefore, the company guarantees the payment of those debts, so that in case of default by the customer, the hurt will the factoring company and not the company itself.

of accounting, from the time sold the customer base, reduce your debt balance, since this operation is no financial risk to the beneficiary.

By factoring, the author goes to collect the cash the amount invoiced to customers (this amount is the one that settles the factoring company).

This funding formula is expensive, being the interest rate, higher than that obtained by traditional trade discounts.

Often excluded from such transactions, customer sales and perishable products and those made to long term.


Who does it:

factoring operations can only be made by financial institutions or credit, ie by:

- Banking.
- Savings.
- Credit Unions.