Situations when factoring is needed and when it is not possible

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Maksudasm
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Joined: Thu Jan 02, 2025 6:46 am

Situations when factoring is needed and when it is not possible

Post by Maksudasm »

The need for factoring transactions is due to the increase in global trade volumes. In such conditions, the terms of payment for goods after their shipment often increase.

The need for factoring services may also arise as a result of force majeure conditions.

Let's look at the most common situations in which businessmen use factoring:

When there is a need to urgently romania email list increase current assets. Factoring services in this case will be cheaper compared to short-term lending. Such cases are more typical for small companies, for which it is difficult to obtain a loan on favorable terms in the Russian Federation.

If the transaction requires providing more convenient payment terms to the buyer.

When concluding contracts with new customers who may be unstable in terms of payments.

In a situation where a small company makes a delivery to a large corporation that has clearly defined payment terms that are not entirely convenient for the supplier.

Receiving financial resources under factoring conditions is not available to companies:

With a wide list of buyers with a lot of current debt.

Producing specialized products.

The specific nature of the activity requires that invoices be issued only after certain work has been completed.

Working with subcontractors.

If they supply under the terms of after-sales service.

Factoring financing is not possible:

Transactions between branches of the same company.

Debts incurred by individuals.

Budgetary enterprises.

3 examples of using factoring
By opening a factoring agreement, a company can increase the payment term for deliveries and reduce the workload of its employees who control the accounts receivable of customers. In addition, such a solution will allow the accounting reporting to be brought to a state that allows attracting investments for business expansion.

Possibility to extend the deferment of debt repayment
An important advantage of using factoring services is the ability to defer payment of accounts receivable.

Many large trading companies have been using the services of financial agents for several years. The interaction scheme is simple. The seller ships the goods to the buyer, providing a deferred payment service for a period of up to 120 days from the moment the client receives the goods. The factoring organization reimburses the payment for the work performed.

Thus, the payment deferment period increased from 30 days, while some discount was received for paying for the products in a short time. Additional funds were used thanks to the previously issued loan and the paid commission for the factoring company services, which increased the amount of profit from sales by more than 10%.
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