Non-residents › Financing › Trade finance › Factoring › Overview
Factoring
Factoring is a method of disposing of trade debts where a company "sells" these debts to a financial institution. It is a financial option for sellers of goods or services.
Offering better payment terms for buyers, companies are often facing liquidity crises. The outstanding invoices are blocking any options to invest and grow. There might also occur problems disciplining and scanning the buyers. In such cases it is useful to apply for factoring. Factoring enables new means of financing from the bank, with the outstanding invoices as collateral.
The factoring procedure
A mutual framework agreement will be concluded between Sampo Pank and the client, in which the general factoring limit is determined. Within this limit, invoices of various buyers can be factored in various currencies.
- Upon selling goods or rendering services the seller issues an invoice to the buyer.
- After the buyer has accepted the invoice, the seller submits it to the bank for factoring.
- The bank purchases the claim for an unpaid invoice, making an advance payment to the seller of up to 90% of the value of the invoice. The commission fee is deducted from the payment. The seller receives the money on the day of submitting the invoices to the bank!
- From here on, the bank will deal with monitoring and collecting the payment of the invoice.
- On the day of the invoice deadline, the buyer will pay directly to the bank.
- After receiving the payment, the bank will transfer the unpaid part of the invoice to the seller.
In case the buyer is unable to pay, the seller has the obligation to buy back the invoices (except in the case of non-recourse factoring). To manage the financial risk of the buyers, we recommend credit insurance.
The internet bank enables the client constant overview of all the factoring transactions. In addition, the bank sends a report concerning each transaction to either fax or e-mail.
Advantages of factoring
Quick way of financing – enables the company to increase its sales.
- Longer terms of payment for buyers – improves the competitiveness of the company.
- Flexible financial resource – the factoring limit can be raised as the company increases its sales.
- No additional collateral – the bank obtains claims for outstanding invoices.
- Bank scans all buyers and incoming payments – a good way to discipline the buyers.
Who can make good use of factoring?
- New and growing companies;
- Companies with limited loan options (no collateral, weak financial standing);
- Companies with debit debts forming a large share of assets;
- Companies with problems collecting money on time;
- Companies with seasonal sales;
- Initiators of large projects;
- Companies with firm payment deadline policy.