What is Factoring and what types exist?
Posted: Tue Jan 21, 2025 9:12 am
It is a financial term that is acting as a lifeline for many companies and is increasingly present in the financial field. ' Factoring ' is the name given to a short-term financing instrument by which a financial institution advances to a company the outstanding debts that it has, advancing them capital that is sometimes key to the survival of the business. Below we will address in detail what factoring consists of and what it is , the key aspects such as the different types of operations that occur and the pros and cons .
The latest data available for the end of the financial year indicate that factoring experienced a growth of 29.3%, registering a total volume of up to 257,636 million euros in assignments, which is how these operations are treated in financial terms. The Spanish Factoring Association (AEF) is behind this figure, being an organization launched in 1988. Its nearly 40 years of activity show that we are dealing with an instrument with deep roots in the economic sector. We answer the question of 'what is factoring' in the following items, as it is a key concept for professionals in this field of activity.
Definition of Factoring
The AEF offers the following definition of factoring: “It is a china whatsapp data financial instrument aimed at companies of all kinds and which is developed in the short term. In parallel, other management, administration and guarantee services are provided in relation to the possible insolvency of the debtors of the credits that were granted.” This is the clearest way of resolving what factoring is , which fulfills a main function and in turn develops a series of aids to companies that require this highly specialized product.
What are, therefore, the applications and functionalities of this short-term financing instrument ?
Assume the credit risk of a company/corporation.
Accept the exchange rate risk, in cases where the debt is in foreign currency.
Manage invoice collections both in advance and on a recurring and ongoing basis.
Management of the receivable portfolio.
Conduct a debtor analysis.
Dealing with insolvency coverage.
These aspects depend on the type of factoring agreed upon and this must be included in the contract. In these operations, it is important to emphasize that they can be carried out by any company that generates accounts receivable, according to the AEF.
Advantages of Factoring
As can be seen from the previous point, the advantages of factoring are numerous and this system goes beyond thinking that it is only and exclusively about the transfer of credits between companies/organizations/institutions. These are the main pros of opting for this financial tool :
Companies that hire a factoring service translate their sales into cash transactions . In other words, this means that commercial transactions give rise to cash in hand.
SMEs are often the ones that need this type of financing instrument the most, especially in times of crisis when they act as suppliers and face difficulties in receiving payment for bills, which then become outstanding debts. Factoring thus provides companies with the possibility of immediate liquidity.
The latest data available for the end of the financial year indicate that factoring experienced a growth of 29.3%, registering a total volume of up to 257,636 million euros in assignments, which is how these operations are treated in financial terms. The Spanish Factoring Association (AEF) is behind this figure, being an organization launched in 1988. Its nearly 40 years of activity show that we are dealing with an instrument with deep roots in the economic sector. We answer the question of 'what is factoring' in the following items, as it is a key concept for professionals in this field of activity.
Definition of Factoring
The AEF offers the following definition of factoring: “It is a china whatsapp data financial instrument aimed at companies of all kinds and which is developed in the short term. In parallel, other management, administration and guarantee services are provided in relation to the possible insolvency of the debtors of the credits that were granted.” This is the clearest way of resolving what factoring is , which fulfills a main function and in turn develops a series of aids to companies that require this highly specialized product.
What are, therefore, the applications and functionalities of this short-term financing instrument ?
Assume the credit risk of a company/corporation.
Accept the exchange rate risk, in cases where the debt is in foreign currency.
Manage invoice collections both in advance and on a recurring and ongoing basis.
Management of the receivable portfolio.
Conduct a debtor analysis.
Dealing with insolvency coverage.
These aspects depend on the type of factoring agreed upon and this must be included in the contract. In these operations, it is important to emphasize that they can be carried out by any company that generates accounts receivable, according to the AEF.
Advantages of Factoring
As can be seen from the previous point, the advantages of factoring are numerous and this system goes beyond thinking that it is only and exclusively about the transfer of credits between companies/organizations/institutions. These are the main pros of opting for this financial tool :
Companies that hire a factoring service translate their sales into cash transactions . In other words, this means that commercial transactions give rise to cash in hand.
SMEs are often the ones that need this type of financing instrument the most, especially in times of crisis when they act as suppliers and face difficulties in receiving payment for bills, which then become outstanding debts. Factoring thus provides companies with the possibility of immediate liquidity.