Essential Opportunities for Developing the Business

When deciding on financial issues, there are many self-employed and SMEs who show interest in two tools that can be of help. It deals with non-recourse factoring and with recourse, both short-term financing instruments that allow those interested to collect invoices in advance, avoiding the risk of insolvency on the part of their suppliers or customers.

In order to opt for one or another modality, it is convenient to take into account the service provided by each one of them. Knowing the policy of action of these financial tools can, in case of identifying specific needs in the treasury of the activity, optimize the requests made to the bank. For the Accounts receivable management services from Century Finance you will be able to have the best options.

The Small Words

In a very summarized way it is specified that factoring -without specifying in its modalities of with or without recourse, or international factoring-, is a financial tool that allows companies and freelancers to collect their invoices in advance to obtain alternative financing or obtain liquidity to cover possible expenses or to pay the payment of materials or services that are necessary to continue with their activity – it must be made clear that it has nothing to do with the ‘ confirming ‘ and that it is not bank loans. The agents that take part in a factoring process are:

Assignor: term used to designate the company or self-employed person who uses the factoring service.

Debtor: name assigned to the companies or self-employed who have to pay the invoice to the assignor.

Factor: bank, savings account or Financial Credit Establishment (EFC) that provides the factoring services to the transferor and, later, will collect the corresponding money directly from the transferor when it collects -factoring without notification- or through the debtor -factoring with notification -.

Since the financial institution that anticipates the money to the cedants assumes a significant risk of default, the payment made to these companies or freelancers is penalized with a commission that can amount to up to 3% of the assigned credit.

Once the concept of factoring has become clear, let’s see what the differences between non-recourse factoring and recourse factoring are. Depending on the agreement reached between the transferor and the factor, we will be in either case.

What is factoring with recourse

This type of factoring considers the assignor liable in case the debtor does not pay the invoice. Let’s give a practical example to understand it better.

Raquel, a businesswoman dedicated to the upholstery of armchairs, needs to buy fabrics worth 5,000 euros from one of her suppliers to deal with a last-minute request. Their funds are not so high as to be able to manage this payment, since they have not yet charged a bill of 6,000 euros that they issued to a hotel that needed their services because they were remodeling their furniture.

Comments are closed.

  • Partner links