FREQUENTLY ASKED QUESTIONS
What is Factoring?
Factoring is a range of services provided to companies where the Seller assigns its trade receivables from its buyer(s) to a Factor.
The basic services offered to the Seller are management and collection of the accounts receivables, while there may be an option for discounting of the assigned receivables, as well as an additional option for credit risk coverage, based on specific requirements.Which is the necessary information to evaluate a potential client?
The business activity of the company, transactional cycle and recent financial information, as well as information for the buyers such as annual turnover and credit terms, is required for initial assessment.
Emphasis is given to factors like risk concentration, term discounts or counter-claims and sales seasonality.How does Factoring work?
Following the conclusion of the agreement between the Seller and the Factor, the Seller notifies the buyers for the assignment and sends copies of the outstanding invoices to the Factor.
Thereafter the Factor will communicate with the buyers for account reconciliation and to provide payment details.
If a discounting option is agreed between the Seller and the Factor, the Factor will credit the agreed percentage of the eligible receivables to the Seller’s account.
Periodically, the Seller will assign new invoices that refer to sales to the assigned debtors, while the Factor will set off amounts collected for maturing invoices with any balance due from discounting and will attribute any credit balance to the Seller.Will Factoring change the invoicing process?
The general process of invoicing the assigned buyers will not change (i.e. Seller – Buyer information, credit terms etc.).
However, every invoice issued after the initial assignment to the factor should be marked by either a stamp or a sticker, indicating that the invoice is assigned to ABC Factors.How are the buyers notified for the assignment?
ABC Factors will provide the Seller the template of the notification of assignment that has to be filled with the factoring agreement number and the credit terms agreed between the Seller and each buyer.The Seller has to send a similar letter to each one of the buyers to be assigned under the factoring agreement.What is the cost of Factoring?
Factoring has two basic types of cost for the Supplier: i) the management commission, that is a percentage of the assigned invoices and reflects the remuneration of the Factor as regards accounting control and collection of receivables and ii) the discounting commission, which is calculated on the discounted balance of the assigned receivables.