factoring documents. What is factoring in simple words

When looking for funds for the development of production, all financial services can be considered. Factoring allows you to receive money before the buyer pays for the delivery. Such an operation allows you to quickly return funds to circulation and reduce many risks for the enterprise.

 

There are many options where to get funds for business development. The most obvious is to get a loan. However, the market banking services much wider, and banks can finance beyond lending. There is, for example, factoring, which will be of interest to manufacturers and wholesalers. This service is provided not only by banks, but also by others. commercial organizations.

Definition of factoring

Factoring is the financing of the supply of goods. The supplier company ships products and receives payment for the batch not from the buyer, but from the bank. The buyer, in turn, pays the debt to the credit institution.

There are 3 parties involved:

• supplier (creditor);
• buyer (debtor);
• bank (factor).

How do the parties interact?

The supplier concludes an agreement with the bank, and he notifies the buyer of its existence. The order of shipment and payment is fixed in additional agreement signed by the buyer and seller. After that, the seller ships the goods to the buyer's warehouse. The supplier submits the purchase documents to the bank, the credit institution transfers the money to the supplier's account (in accordance with the agreements, payments may be split). The buyer settles with the bank, the bank transfers the balance to the supplier minus the commission. Thus, the supplier does not wait for payment from the buyer, but receives it much earlier. For this, he pays the bank a commission (around 10% of the shipment amount). Several factors may be involved in one transaction.

Advantages and disadvantages

Benefits for the buyer:

• purchase with deferred payment;
• payment directly to the bank (usually a credit institution provides several payment options);
• possibility of partial payment.

Benefits for the supplier:

• accelerated receipt of money;
• increase in the turnover rate;
• the bank covers the main risks (delay in payment, instability of the exchange rate, lack of liquidity, etc.);
• no collateral is required (unlike a loan).

Benefits for the bank:

• receiving remuneration for the operation;
• the expansion of the customer base.

However, there are also disadvantages to this procedure. Firstly, you will have to pay for the provision of the service, and the amount depends on the size of the transaction. Secondly, the more participants, the longer disputes are resolved.

Other features of factoring:

• deferred payment period, as a rule, does not exceed 4 months;
• it is not required to switch to cash settlement services (settlement and cash services) to the bank;
• the size of the transaction is not limited, it depends on the volume of sales;
• is valid indefinitely or until the date of termination of the agreement between the supplier and the bank.

Types of factoring

There are several types of factoring. The first (main) difference between them is riskiness, the second is the moment of occurrence of monetary requirements.

The service assumes that the bank acquires all the debt of the buyer. However, if it is impossible to recover funds from the debtor, the following suffers losses:

• supplier (factoring with recourse);
• bank (factoring without recourse).

A claim may arise:

• at the time of signing the contract (real);
• in the future (consensual).

There are also other classifications depending on other criteria, such as whether all parties are located in the same country or located outside the same country.

History reference

Historians argue that factoring is the oldest form of lending, which is more than one millennium old. Of course, in ancient civilizations, slightly different schemes were used, but there were features of factoring operations. However, the service did not receive a strong development then.

England

A natural impetus to development happened only in the 14th century in England. This is how intermediaries appeared, organizing the interaction between manufacturers and end buyers. The task of the factors included the search and analysis of buyers, the provision of storage of products, and the collection of trade proceeds. Intermediaries have allowed remote businesses to focus on manufacturing rather than finding outlets. They greatly helped remote companies sell their products. The factors of that time were completely responsible for the search for markets and the assessment of the reliability of buyers.

Rest of Europe and USA

A surge in the popularity of factoring in the United States occurred in the 19th century. At this time, many companies providing such a service were formed here. Agents provided trade between remote settlements and different states. For a fee, they guaranteed payment for all goods.

In Europe, factoring was developed in the second half of the 20th century with the growing popularity of installment payment services. At this time, the Europeans were short of funds, so the tendency to sell goods first and then pay suppliers became quite popular.

By the end of the 20th century, factoring had become new level- international. Now parties from different countries. This required regulation of the procedure, since in many states there were no legal background for factoring operations. So, in 1988, the UNIDROIT Convection was adopted in Ottawa.

Legal regulation

Factoring transactions are governed by the laws of the country where they are conducted. In Russia, this is the Civil Code of the Russian Federation. And although it lacks the term and definition of factoring, there is a mention of transactions with exactly the same mechanism.

Factoring received wide use at the international level, and the UNIDROIT Convention (Ottawa, 1988) was adopted to regulate them. Russia joined it in 2015. It explains in detail general provisions and the scope of the service, the rights and obligations of all participants in the transaction are given, the rules for assignment of claims are indicated.

Russia today

What is factoring, in Russia learned in 1996, along with the release of the first part of the Civil Code. This scheme of work with suppliers and buyers was experimentally introduced in the USSR. However, due to the lack of such experience, the command economy and the closed borders, the scheme was distorted: banks worked with overdue debts.

Factoring has been developing in Russia since 2002. Its volume in 2002 amounted to 168 million euros, and in 2003 already 485 million euros. However, in last years Growth decreased, in 2014 it fell from 30 to 9% (although 5% was expected according to forecasts). The fall was caused by a difficult economic situation, which resulted in an increase in bankruptcies of enterprises.

Growth rate in 2015

Main factor problems in 2015

Segment of small and medium business

Summary

In simple terms, factoring is a service involving a bank or other commercial firm, in which the supplier receives money for the delivered goods from a credit institution. Later, the buyer transfers the required amount to the bank.

The transaction is beneficial to all three parties, but the supplier and the bank receive the most benefits. For the buyer significant difference no, who to pay money to.

Despite the temporary recession, the growth of the factoring market will continue further; in Russia, this service is provided by such companies and banks as Alfa-Bank, Promsvyazbank, VTB-factoring and others.

Final goal individual entrepreneur or company - receiving (in largest volume and in the shortest possible time). The speed of the transaction also plays a significant role in extracting profit: sometimes, due to a few missed days, you can lose most of the expected profit or miss the opportunity to establish a strong relationship with a new business partner. The seller is usually ready to sell products by default; Another thing is the buyer, who, no matter how interested in the goods, does not always have the amount necessary for the immediate conclusion of the contract.

It is clear that it is unprofitable to take a loan for the sake of concluding one transaction, but one cannot count on it. It is wiser to take advantage of factoring - the mediation of a third party who is ready, under certain conditions, to pay for the goods for the buyer. About the use of factoring, its varieties and the rules for choosing a factoring company or bank - see below.

Factoring - what is it?

In simple terms, factoring is a way to conclude a transaction and draw up a contract for the sale, maintenance or provision of services with the involvement of borrowed money provided by a third party: a bank, an enterprise or an organization.

Important: in accordance with Article 824 of the Civil Code of Russia, factoring is one of the types of contracts for the assignment of a claim. Its main difference from a cession is the irremovability of “actors”: the creditor at any time remains the creditor, the borrower remains the borrower, and the intermediary remains the intermediary.

Like any financial transaction, factoring requires a contract. In the contract of sale, provision of services or maintenance, it is possible to prescribe the involvement of a third party, but a mere mention will not be enough: in the event of disagreements between the parties (in any combination), a separate document will have greater legal force, drawn up in compliance with all the required formalities. It is he who will need to be used in attempts to pre-trial settlement of the situation or when filing statement of claim to court.

Advice: if the seller or buyer does not want to enter into a contract with a third party, they can try to raise money by exploring or other options for raising funds that do not burden counterparties with additional agreements.

Basic terms

In accordance with the terminology adopted in domestic law, when concluding a factoring agreement, the following definitions are used, enshrined in the mentioned article of the Civil Code:

1. Lender (seller, supplier, beneficiary, contractor). A person who sells inventory or offers services on a reimbursable basis. A creditor can be an individual entrepreneur, a company with limited liability, joint-stock or public joint-stock company, enterprise and other commercial organizations, regardless of the declared form. Under the terms of the factoring agreement, the creditor receives from the "intermediary" working capital (payment for the supply of goods or services to the consumer), and in exchange transfers to him the right to demand a debt from the buyer in in full.
2. Borrower (buyer, consumer). A person who receives goods or services from a seller using borrowed funds. By concluding the contract, the borrower undertakes to deadlines and fully return the "intermediary" the money used to conclude the transaction. Unlike a standard loan agreement, with factoring, working capital is not transferred to the hands of the borrower, but is immediately transferred to the seller's settlement account.
3. Factor ("intermediary", financial agent). A person who, on the basis of a factoring agreement, transfers the required part of the funds available on his account to the creditor in exchange for compensation from the seller and the right to recover the debt from the acquirer. The factor may be, according to Article 825 of the Civil Code, any legal entity acting on a commercial basis (not necessarily financial institution). AT Russian Federation banks traditionally take on the role of the factor; a little less often - MFIs and special factoring companies. Based on the factoring agreement, the agent has the right, in case of non-payment, to demand money from both parties to the transaction: from the seller (supplier) - the compensation due to him, and from the buyer - the amount used to conclude the contract.
4. Factoring. The process of concluding a tripartite agreement between the seller, the "intermediary" and the buyer, including the search for a factor, the study of the solvency of the consumer (borrower), the transfer of invoices (obligations) to the agent and the transfer of borrowed funds to the creditor's account. There is no single form of a factoring agreement: the parties to the transaction can freely adapt it to specific conditions. The mandatory clauses of the contract include the conditions for providing money, the rights, obligations and responsibilities of the parties.
5. Factoring service. Ensuring that an "intermediary" concludes a transaction for the sale, maintenance or provision of services by transferring funds instead of the buyer to the seller's account. The standard volume of “injections” of a third party is from 70% to 90% of the transaction amount; most agents do not undertake to compensate the cost of goods or services in full.

Service provision procedure

In the most general case, the factoring scheme looks like this:

1. The seller and the buyer agree to defer payment for a consignment of goods or services provided for a certain period. Theoretically, this can be any time, but in domestic practice, the delay rarely exceeds three months.
2. The parties to the transaction look for a factor (a bank or a company specializing in providing such services) and conclude tripartite treaty on the provision of working capital. At the same time, as already mentioned, from the moment the transaction is completed until the debt is exhausted, the role of the creditor is assigned to the seller (supplier); the factor remains a financial agent that has the right to claim funds from the borrower in full, including by filing a claim with the court.
3. The money goes to the seller's account. That, in turn, delivers the goods or provides the service to the consumer, after which he transfers the invoices to the “intermediary”. Simultaneously with these events, the buyer, after checking the quality of the products sold to him or the services provided, pays the creditor "his" percentage of the cost - usually from 10% to 30%, depending on the terms of the contract.
4. If, after delivery, it is discovered that part or all of the inventory or, for example, the work performed, is of inadequate quality, the consumer has the right not only to demand, in a pre-trial settlement or in the courtroom, the return of the funds contributed by him, but also to insist on writing off the resulting to a financial agent of a debt or on the provision by a supplier of a similar product or service of adequate quality. In this case, the grounds for the claim will be, in addition to the relevant protocols, both contracts: sale and purchase and factoring.
5. If the consumer has no complaints about the quality of the delivered goods or the work performed, he signs the invoices and before the expiration of the period specified in the factoring agreement, he pays the required amount to the “intermediary”. This is the end of the relationship under the contract.

Important: in preparation for signing the contract, the factor has the right (or rather should) to verify the reliability of the other two parties: the seller, who simultaneously assumes the role of a creditor and financial guarantor, and the buyer. The easiest way to do this is to request documents on the rules of delivery and payment, as well as on past cases of delays and non-payments by the consumer.

However, even if the parties conspired and misled the "intermediary", he will not lose the spent funds: depending on the circumstances, he can either, having proved the existence of fraudulent actions, demand compensation from both parties in court, or insist on the return of the money he invested in the transaction based on the terms of the contract. Such variability is possible, since it is not of interest to a third party who exactly will compensate him for the costs: the consumer or the supplier.

Components of the contract

The factoring agreement must contain:

1. Full official and (optionally) abbreviated names of all parties to the transaction: lender, borrower and financial agent (including details, contacts and postal addresses). If one of the parties is individual(individual entrepreneur), instead of the name, his last name, first name and patronymic, as well as the number of the certificate of state registration and the date of issue of the document are indicated.
2. Subject of the contract. It is important to understand that the subject in this case is not the purchase and sale, the provision of services or the performance of work, but the factoring itself, that is, the provision of funds by a third party for the implementation of the transaction. Nothing more needs to be given in the document: the details can be studied by referring to the sale and purchase agreement, which acts in conjunction with the factoring services agreement.
3. Rights of each party to the transaction. In the general case, excluding minor moments of the transaction, the seller has the right to receive funds from the buyer and financial agent, the right to demand from each of them the fulfillment of obligations for payment and acceptance of tangible assets or services and to protect their interests in pre-trial and judicial procedures within the framework of current legislation. The buyer's rights are to require the seller to comply with the terms and conditions of delivery in accordance with the sale and purchase agreement and with the involvement of borrowed funds, prescribed in the agreement for the provision of factoring services. The financial agent, after signing the relevant contract, may insist that the seller send him invoices or other documents confirming the fact of the emergence of commercial relations between the seller and the buyer, that he be compensated by the creditor and that the buyer repay the debt in full within the established time frame.
4. Responsibilities of each party. The obligations of the seller, buyer and factor follow logically from the previously listed rights of other participants in the transaction. The factoring agreement is concluded, unlike most contracts, between at least three actors, which means that the legal relations arising on its basis include more vectors - and all of them should be listed in the relevant sections.
5. Liability of the creditor, borrower and financial agent for failure to perform their duties. It is recommended to include in the section not only information on penalties for delay, short delivery or payment of funds not in full, but also the procedure for pre-trial resolution of disputes arising in the course of contractual relations. A separate clause in the contract can include a provision obliging the party that considers its rights to be infringed to try to resolve the conflict through negotiations before filing a claim with the court: each of the counterparties can use the time spent on lengthy proceedings to their greater benefit.
6. Step-by-step description of the process of attracting a financial agent. There is no need to overly complicate the operation: the simpler and more transparent it is, the easier it will be for each of the parties to properly fulfill their obligations.
7. The amount of funds provided on credit, the interest in favor of the financial agent and the commission paid by the seller. Here it makes sense to indicate the procedure for insuring investments of a financial agent in case he does not receive money given out for a while.
8. Contract duration. In the section it is recommended to indicate the limitation period. If the latter is not in the contract, the standard component will apply, according to Civil Code Russia, three years.
9. Additional conditions not included in the body of the factoring agreement. These include the ways of transferring and returning funds, the preferred banks, the methods of communication used, and so on - everything that the counterparties consider to be of importance.

The contract for the provision of factoring services must be certified by signatures and seals or stamps of all parties to the transaction: if the seller, buyer or "intermediary" could not declare their agreement with the terms of the contract, but the fact of the transaction took place, it will be necessary to prove the legal force of the document on the basis of invoices, payment and other relevant papers. This is more difficult and longer than spending time signing a document.

Important: to certify the contract, it is not necessary to print it. The parties can use qualified digital signatures, which can slightly reduce the burden on the offices of companies or individual entrepreneurs.

Varieties of factoring

There are several types of systematization. The first of them (in order of interaction between the parties) includes two types of factoring services:

1. Open. The most common option, which involves the conclusion of an agreement between commercial structures: both the seller and the buyer, and the financial agent are individual entrepreneurs or legal entities responsible for non-fulfillment of obligations under the contract and Russian legislation. The cooperation scheme is fully consistent with the above: the parties enter into a tripartite agreement, the seller delivers the goods or provides the service, receiving part of the money from the buyer and the main one from the factor, after which the consumer repays the debt to the financial agent within the specified time.
2. Closed. In this case, the seller attracts the money of the "intermediary" without the knowledge of the buyer. The latter, not participating in the signing of the contract for the provision of factoring services, in fact receives a small delay in payment, and at the end of it returns the funds in full to the creditor without interacting with the agent.

The second type (according to the distribution of commercial and insurance risks) also implies two options:

1. No regression. The financial agent assumes all risks and costs, including those associated with pre-trial settlement of disputes with the buyer, filing a claim with the court and further proceedings.
2. With regression. It is more beneficial for the "intermediary", because, in accordance with the terms of the contract, he receives the right to demand repayment of the debt from the seller if the buyer neglects his obligations or cannot fulfill them for objective reasons.

The third type - according to the start time of the factoring agreement:

1. Preliminary (consensual). The buyer assumes debt obligations, and the seller cedes to the factor the right to recover the debt even before the main contract (purchase and sale, provision of services, and so on) enters into force. It is often practiced, however, it is associated with increased risks for the consumer and, therefore, the “intermediary”: the first, in case of dishonesty of the supplier, will have to prove his case and put forward new requirements, and the financial agent will have to wait all this time for the repayment of the debt.
2. In fact. The contract for the provision of factoring services, at whatever point in time it was drawn up, enters into force after the seller has fulfilled its obligations towards the buyer, and sometimes even after the latter has paid his share of the payment. A safer option for a financial agent, since at the time the debt arises to him, the consumer already has the opportunity to verify the quality of goods or services.

The fourth type - by countries of presence:

1. Interior. All participants in the transaction are residents of the same country; accordingly, contractual relations between the parties develop in a single legal field (and there is no need for correlation).
2. External. The provision of factoring services is carried out at the international level. It does not matter whether all parties to the contractual relationship or only one of them are in different jurisdictions; only the compliance of the terms of the transaction with the norms of international and local legislation matters.

The fifth type - by the number of financial agents:

1. One factor. The most common option: both the seller and the buyer enter into an agreement with the same “intermediary” and fulfill obligations to him in exchange for a short-term provision of borrowed funds.
2. Two factors or more. A complex scheme in which the supplier involves one agent (or several), and the consumer - another. How more parties transactions, the more difficult the procedure for drawing up a contract for the provision of factoring services, therefore, it makes sense to resort to this option if one "intermediary" cannot provide the required amount or the seller and buyer do not strongly trust each other.

There are other ways to classify factoring - for example, by the use of electronic or paper documents or by the specialization of the intermediary firm. However, these criteria are only particulars that do not affect the scheme for providing funds for the conclusion of a transaction, and therefore it makes no sense to engage in further transfers.

Pros and cons of factoring

Advantages of attracting a factor (or several factors):

1. The ability to conduct transactions without making a deposit. All that is required from the consumer to receive the goods is to deposit 10-30% of its value to the seller's account. In the future, he returns to the financial agent the amount previously provided by him: the remaining 70–90% plus, depending on the terms of the contract, a percentage for services.
2. Simple conditions for receiving the service. Since the return of funds to the financial agent is guaranteed by the concluded tripartite agreement, and, with greater forethought, by the obligations of the seller, he does not have to worry about the safety of the money provided - therefore, the lending conditions are changing for the better.
3. The opportunity for the seller to use the funds received from the agent in full. In this case, it is not necessary to keep the balance on the account, as it should be when receiving a loan.
4. Seller Guarantees. Involving a factoring company or a bank for a small fee, the supplier usually shifts to him not only the worries associated with receiving money from the borrower, but also gets rid of the need to pay income tax from his own funds; the latter often happens when the seller has already delivered inventory to the buyer, and he does not have time to transfer the required amount to the account of the creditor's post before the deadline for paying the tax.
5. Maintaining a neutral internal balance. Factoring services do not belong to the field of lending, which means that they in no way affect the CI of an individual entrepreneur or company.
6. Attraction of new clients due to the formation of a more profitable offer, which implies the provision of installments.

Disadvantages of using factoring services:

The need to involve financial agents in transactions was discussed earlier; here it makes sense to list again the situations in which the use of factor money is especially useful:

1. Urgent need to attract borrowed working capital. This applies to the greatest extent to the sphere of small business, which is experiencing a huge tax burden and is not spoiled by profitable loan offers.
2. The primary task is to attract new customers and retain existing ones. It is more convenient for many consumers to receive goods in installments, initially paying a small part of their cost, especially in the context of a permanent financial crisis. Factoring allows the seller to approach business with new side without risking your money and without wasting time communicating with creditors.
3. The buyer is unreliable or the supplier has not previously dealt with him. It is difficult to say whether the factor will agree to provide money under such circumstances, but, having found a suitable financial agent, the seller, without burdening himself with the conclusion of an assignment agreement, transfers to him the receipt of money from the consumer.
4. Mismatch in the scope of activities of counterparties. If a small business supplies or purchases products to an industrial giant, it is likely that their payment schedules do not match. Factoring allows you to get rid of this inconvenience by leveling the gaps in time: the creditor receives payment for the goods immediately and in full, and the consumer can pay for the delivery without urgent withdrawal of working capital.

Important: in accordance with domestic practice, factoring services are not used for mutual settlements between branches of the same enterprise, as well as for repayment of existing credit obligations.

How is factoring different from a loan?

Features of factoring services in comparison with lending:

1. Shorter debt repayment periods, usually up to 12 months from the date of its occurrence.
2. The borrower does not need to provide collateral.
3. The amount of funds provided is not fixed: it is determined by the supplier himself.
4. An agreement with the factor can be concluded on an indefinite basis: the seller will receive the required amount each time upon submission of invoices - without reissuing documents.
5. The debt is repaid not by the recipient of the money, but by a third party - the consumer.

How to choose a factoring company?

Factor selection criteria:

• orientation: some financial agents provide funds for transactions in only one area; others, usually larger, are universal;
• reputation: do not deal with a frankly unreliable or badly reviewed "middleman", even if he offers more profitable terms use of working capital;
• price: not only the buyer, but also the seller has to pay for convenience - which means that it makes sense to find a more economical option.

Important: an entrepreneur who is afraid to trust factoring companies should pay attention to banks that provide similar services. These include Sberbank, VTB 24, OTP Bank and other major Russian financial institutions.

Summing up

Factoring is the receipt of funds for a transaction from an agent with the subsequent repayment of the debt by the buyer. In this case, the seller himself pays in favor of the factor remuneration for the use of its services. The contract can be bilateral or tripartite, concluded for a more or less long term, or even be indefinite.

The advantage of factoring is the ease of registration of commercial relations and the terms of payment that are comfortable for the client. Disadvantages - relatively high interest rate and the need to provide information about the buyer to a third party. The use of factoring services does not affect the credit history of the supplier and the consumer, and also does not imply the need for collateral.

Factoring- a scheme that allows an organization to receive short-term investment without recourse to creditors. The main advantage of factoring is that the organization does not need a positive one, without which it is simply impossible to get bank financing.

You can use factoring services tiny organizations who have never taken loans. Most often, factoring is used by firms that sell high-value products, such as food.

Scheme of factoring operation

In order to understand what factoring is, it is enough to consider the scheme in detail:

At first glance, the relationship between the three parties seems to be confused - in fact, everything is quite simple. factoring agency (we will call the service provider simply factor) sells its receivables to him, receiving short-term financing in return. When the consignment of goods is sold, the client buys back the balance of receivables from the factor. The entire amount of the debt is not returned, since the factor subtracts commissions and interest from it, which, by the way, can be very significant. Long-term relationships with the factor are unprofitable, and therefore it is necessary that the products traded be highly liquid.

Consider each of the numbered operations from the illustration:

1. The supplier delivers the product to the buyer with a deferred payment.

1. The supplier grants the right to demand a factor from the buyer. For this, the factor receives a part of the debt, which is called advance payment. The advance payment is not fixed and can even reach 90% of the amount owed.

1. The supplier receives a part monetary claim from the factor.

1. Buyer return factor.

1. The factor deducts the commission and the part already transferred from the returned amount, and sends the rest to the supplier.

It can be seen that the factor is an ordinary broker, an intermediary between the buyer and the seller. The presence of a factor in a relationship allows all three participants to be in an advantageous position: the supplier receives part of the money immediately, the buyer can use a delay, and the factor earns money due to the fact that he has it right now. However, the factor takes on the risk of non-payment by the buyer, which also makes it related to a credit institution. Therefore, employees of the factoring company pay great attention to risk assessment, which is reflected in the conditions offered to the client. Universal Conditions factoring does not imply a strictly individual approach to each client.

Pros and cons of factoring operations

Factoring transactions are a large number of advantages:

• Flexibility of conditions. Unlike a bank or other credit institution, the factor does not constrain the participants in the relationship with strict time frames. However, the principle of "return when you want" also does not work - the factor lends money for a reasonable period. In addition, it is unprofitable for the buyer to return the money for a long time - he risks simply ruining himself on commissions.

• Simplicity. The factor does not require a bunch of papers and documents that can confirm solvency and a good credit history.

• Simplification of accounting operations. Factoring removes receivables from the client, which simplifies financial calculations.

• Opportunity to obtain additional funding. The amount is also not fixed, as are the terms. If the client needs more money, then the factor will gladly provide them, because the commission is growing too.

The only, but very big disadvantage of factoring is the high cost. The rates here are incomparable with bank rates - they can reach several hundred percent per year.

Types of factoring

There are several classifications that allow dividing factoring into types. The most common one suggests dividing factoring operations into two types:

Thus, factoring with the right of recourse assumes that the factor transfers the invoice unpaid by the buyer back to the supplier and does not require money from the buyer. Non-recourse factoring, on the contrary, assumes that the factor takes all the risks (and, consequently, the costs of collecting the debt from the buyer) on itself. 90% of all factoring companies are of the second type.

There are also open and closed factoring. At open In factoring, the buyer is aware that the debt from him will be demanded not by the supplier, but by the factor. At closed the buyer does not know at all that a factoring company is involved in the transaction.

Factoring can be with or without financing. Factoring with funding involves the transfer of a part of the value of the shipped products to the supplier immediately - as a rule, this is 80-90% of the value of the cargo. The rest of the money is booked and transferred to the client after the successful completion of the factoring operation. Part of the funds, remember, the factor retains.

Factoring without financing represents the collection factor of the buyer. The client, when shipping products, issues an invoice to the buyer through the factor, which is repaid on time. The factor does not transfer money to the supplier, but simply acts as a guarantee that the lot will be paid.

It is easy to understand that factoring without financing and with the right of recourse is a completely useless procedure.

In order to run a business without interruption, an enterprise often has to attract cash under unsecured lending. Today it is most profitable to do this under the terms of factoring. However, before resorting to this type of loans, it is very important to understand: what is factoring.

Factoring is in simple words a kind of unsecured for organizations that provide their customers with goods or services subject to deferred payments. Such financing is usually provided to companies. The use of the factoring mechanism allows many companies to maintain their uninterrupted economic activity, compensating for the cost of supplying raw materials, finished products, as well as carrying out certain works without prepayment. Also, it is this mechanism that allows many firms to simplify their accounting and expand activities as needed without attracting long-term loans.

Factoring: what is it in simple terms through understanding the role of the participants in the process

There are only three parties involved in a factoring transaction. Schematically, their functions in the factoring agreement can be represented in the form of the following table:

These roles will be distributed among factoring participants, regardless of the scheme of the transaction.

Types of factoring

There are closed factoring, in which the organization provides customers with goods or services with deferred payment, taking a short-term loan from the bank based on the receivables that have appeared (this type is the most common) and open factoring, in which the debt is completely transferred to the bank, respectively, to the buyer of the goods or services have to be paid directly to this organization. This type of factoring is less popular.

also in international practice allocate:

• factoring without recourse (in which all the risks of non-payment fall on the shoulders of the bank);
• factoring with recourse, when exactly the creditor is responsible for the timely return of money to a financial institution.

In addition, such types of factoring as tender factoring, which is provided for companies that have won a contract for the sale of products or carrying out certain works, as well as guarantee factoring, in which financing is not given to a company providing goods or services, are highlighted.

Factoring steps and process flow

For a better understanding of the factoring scheme, let's look at specific example open factoring:

• The lender provides its customer with services or goods of interest to him with a deferred payment.
• The creditor submits to the factor a statement confirming the appearance of receivables for the goods or services provided.
• The factor breaks a significant part of the debt. The amount of posting in favor of the creditor in this case can be from 70% to 95%.
• The debtor repays his debt for goods or services.
• The creditor with the factor makes the final mutual settlements. The company returns to the factor the funds previously paid by it with the interest established by the agreement, and the bank acting as the factor gives the lender the balance of funds (depending on the terms of the agreement, this balance will be from 30% to 5%). This is the final stage of the factoring transaction.

This example shows the steps of factoring closed type. In the same case, if the parties work on open circuit, the creditor receives from the bank 100% compensation of the amount for goods or services, respectively, the last stage in this scheme is missed.