Factoring for companies and businesses: how to cover debtors’ insolvencies
Factoring is a sort of financing for companies and companies that allows them to sustain and resolve economic difficulties due to insolvencies on the part of debtors. Factoring is based on the provision of an additional sum of liquidity to balance one’s economic condition in the event that there is a risk of incurring lack of money for these factors. We see together the details of this particular form of credit, the conditions, the guarantees and the methods of repayment of the liquidated amount granted.
Factoring: WHAT IS IT?
Factoring is dedicated to small-medium and large companies that are in difficulty with debt collection, validating their own credit management. To remedy this type of economic difficulty, which has some guarantee of being resolved once the debts have been remedied by the creditors, it is possible to turn to companies that offer this particular form of financing.
Factoring allows external companies to manage their cash flows, assessing the advance of receivables, calculating the overall debt / credit situation. In this way it is possible to obtain a reorganization of the general situation, which are not economic but also of evaluation of the condition of one’s own company, the situation of lost credits and any debts incurred.
|It is essential to entrust the recovery of credit to an external company that resolves the financial situation by recovering the non-old invoices: transfer of the debt.|
Factoring: WHO IS IT FOR?
Factoring is a financial instrument dedicated to small and medium-sized companies and small businesses, which consist of a large and fractioned customer portfolio, so the billing and the request for credits is quite numerous and foresees different deadlines. Factoring is, however, also dedicated to entrepreneurs who present a management activity that lacks organization for the most varied reasons: with the request of an external factor it is possible to resolve any credit position, even if with companies and businesses belonging to administrations and public bodies.
Factoring: FINANCING and CAPITAL
Factoring makes it possible to obtain a loan sum that is not collected by debtors. The factoring company anticipates up to 80% of the total credits, with the possibility of being able to cover up to 100% of the sum, based on the agreements stipulated between factoring company and company. The remaining portion is paid to the factoring company at the time the receivables are collected.
With the recovery of the receivables, the debtors are notified of the credit transfer and on each bill to be settled the value of the credit assigned to the factoring company is reported: the debtors must pay the invoices directly to the factoring company and no longer to the companies or the company with which they had the debt. With the entry of the factoring company, which welds the total debt of a company and a company, taking on the debts, the insolvent subjects towards the company have a period of time of 2 years to settle the debt, based on to the extent established by the Law on factoring No. 52/91 of credit assignment and collection.
To better understand and summarize, below is a table that summarizes the key points of the factoring solution that allows you to settle your debts with your debts and restore your economic situation. The factoring company, in fact, carries out the credit transfer operation, during which the sum of the credits to be invoiced up to 80% is assumed, becoming the creditor par excellence: the debtors, from that moment on, must resolve the debt with the factoring company and no longer with the company or company with which they mainly contracted it. Time 24 months to pay all invoices.
|FACTORING||FINANCING||RECOVERY OF CREDITS|
|COMPANY THAT IS ADDRESSED TO AN EXTERNAL COMPANY FOR THE RECOVERY OF UNUSUAL INVOICES||LIQUIDITY UP TO 80% OF CREDITS||ASSIGNMENT OF CREDITS|
|MANAGEMENT OF TRADE RECEIVABLES||ASSESSMENT OF THE INSOLVENCY RISK||DEBTORS MUST WELD THE DEBT TO THE FACTORING COMPANY|
|WITHIN 2 YEARS|
However, factoring requires guarantees in the recovery of the debtors’ credit, which can often be even in large numbers. For this reason, each type of factoring company provides a careful risk assessment and analysis on each debtor. With the activation of the credit transfer process, the factoring company starts the study and research of the credit trend of the same debtor and assesses its real capacity to repay the debt. Based on the values obtained between the level of risk and the potential percentage that can be recovered, the factoring company provides the loan.
In fact, in the event that, within 24 months, insolvency or non-payment by the debtors, the same factoring company makes the payment of the credit. Thanks to the signing of a factoring contract it is possible to resolve the economic difficulties of small-medium and large companies and companies in the management of credits, through the figure of an external factor. With the request for factoring it is possible to obtain the liquidity of the outstanding credits and guarantee the lifting of the income situation of one’s working activity, as expressed in the following table:
|MANAGEMENT OF TRADE RECEIVABLES||CAPTABLE CAPITAL UP TO 80% OF NON-ISSUED CREDITS||ASSIGNMENT OF CREDITS TO THE FACTORING COMPANY|
|PAYMENT WITHIN 2 YEARS|
Factoring: the ROLE of FACTORS
The external factors are part of financial brokerage companies and operate in the performance of a series of credit management functions on behalf of a company or external company with the sole purpose of recovering the credits and rebalancing the productivity. In fact, factoring allows access to the guarantee of the missing credit, analyzing the invoicing not yet resolved and containing all the debtors’ data and the figures that have not yet been paid to the company.
Factoring, as we have said previously, deals with the management of credit through an external company, accounting, checking the deadlines of invoices, collection and credit recovery. The factor has direct contact with the company or the company that requests its help, continuously monitoring the performance of the company and the income situation.
The costs of factoring requests are not high and concern variable costs based on the administrative and management activity of the company. Factoring is particularly convenient for all companies and companies that find it difficult to recover their debts. In addition to the management and organization of operations aimed at recovering credits, with the disbursement of the capital necessary to revive the management situation of the company, the company can cover up to 80% of the amount of the credits.