Briefly about factoring
Factoring is a relatively young, but already well-established financing service on the Polish market, aimed at the business sector. Under factoring, companies can liquidate invoices they have issued to their contractors that have not yet been paid.
In this way, the entrepreneur can recover the funds immediately, since the receivable is taken over by the factor – in exchange for a commission. There are many types of factoring, so business people can easily choose the right variant for their company’s needs. The plethora of available solutions is a positive situation that promotes competitiveness. However, it can make the choice a bit more difficult – especially for entrepreneurs who have never used similar forms of financing before.
Why do entrepreneurs opt for factoring?
The purpose of factoring is to help a company achieve, recover or maintain liquidity. The factor, i.e. the entrepreneur using factoring, can cede the invoices issued to the factor, so that he will receive the funds due to him even on the same day. This is especially important in industries where deferred payment invoices are the norm.
So instead of waiting 30, 60 or even more days for repayment, the entrepreneur can sell the invoice and receive the money the same day. Unfettered access to funds gives the company the ability to continue to grow, make company purchases at any time (for example, during promotions) or accept more orders, which, after all, often require costs.
One of the most important distinguishing features of factoring is its high availability – especially compared to the services offered by banks. Factors rely on less paperwork, all of which translates into quick – especially compared to credit – turnaround times. Waiting for a loan can drag on for up to several weeks – the decision to grant factoring generally falls on the same business day.
Factoring financing is provided per company, not per purpose. This means that the money raised from the sale of invoices can be used by the entrepreneur for any company purpose. There is no need to document expenses. Moreover, factoring does not increase a company’s debt or affect its creditworthiness. In practice, the factor uses its funds – it cedes to the factor the receivables to which it is entitled, but payment under normal circumstances would occur somewhat later.
What to look for in a factor?
Factoring companies differ in many ways. Here are the ones worth paying special attention to!
Wide range
The best factories are distinguished by their wide and varied offerings and their ability to tailor them to the customer’s own needs. The more types of factoring (full, partial, international, etc.), currencies handled (especially if you do business with foreign entities), forms of settlement and additional services, the more likely your company will find exactly what it needs.
Clear rules
Many financial institutions quote only general costs, only to surprise the customer with additional fees over time. The clearer the rules of cooperation and the clearer the price list, the greater the chance of successful cooperation! Some factoring companies provide fee calculators so that their clients can estimate, even before they make contact, how much it will roughly cost to use factoring.
Additional services
Financing alone – even on attractive terms – is only part of the services offered by the best factoring companies. Before you choose a factor, check whether it offers additional services such as detailed verification of the counterparty, monitoring of receivables, collection of receivables in case of default or insurance of receivables.
Limit amount
Factoring is a service that uses financing limits. This is a pool that the factoring company can use to finance its invoices. With an allocated limit of PLN 500,000, an entrepreneur can sell any number of invoices for a total amount of PLN 500,000. The factoring limit is renewable, which means that with subsequent repayments, the value of the limit will gradually return to the initial threshold.
The higher the factoring limit, the greater the financing options – some factories offer financing up to PLN 15,000,000!
Possibility to personalize the offer
A personalized approach to the customer is a rare and valuable feature. Although this information is often in vain in the ranking of factoring companies, it is worthwhile to find out (for example, when first contacting an advisor) whether the factor offers the possibility of customizing its services to meet the client’s expectations.
Perhaps you need a slightly higher factoring limit than the one shown on the service provider’s website? Or do you care about detailed accounts receivable monitoring with regular notifications and alerts? Do not hesitate to ask about the possibility of launching additional services – even those that do not appear in the tables.
Ranking of factoring companies – how to read the information?
How many rankings, so many ways to present information. When comparing factories’ offers, pay attention to the details by which they differ and relate them to your company’s needs.
Price
While it’s obvious that price will play a major role for many companies, price differences will often not be apparent in the rankings. The reason is simple – factories present differentiated offers, including a range of additional services, different ranges of factoring limits and different lead times. For this reason, it is difficult to estimate the price based on the ranking data.
The information you can find in the rankings is the amount of the fee portion and the factoring commission, which is the basis for the cost of the service. However, this is also often an approximate value.
Factoring limits
Available minimum and maximum financing is an important piece of information regarding the services of the selected factor. With limits, factoring companies often also specify the currencies they handle. This is important – especially if you issue invoices in other than PLN.
Method of settlement
A commission system, a flat rate, or perhaps a fee charged on the allocated limit? For your company’s cooperation with the factor, the method of settlement you adopt is of great importance. Which one turns out to be the most advantageous depends largely on the individual arrangement between you and the factor, but – as always – it’s worth having a choice.
Advance payment amount
A factoring advance is the amount from an invoice that will go to your company’s account after the assignment. The higher the down payment, the better. However, pay special attention to the fact that some factoring companies may also guarantee an advance immediately after signing the contract. This means that your company can receive some of the money before the counterparty confirms the assignment of the claim.
Other financing services
Online factoring is characterized by access to a factoring limit and the possibility of permanent financing. Factors, however, also offer financing for individual invoices, company purchases and even taxes.
Other important aspects to check the ranking of factoring companies
There are still a few features to look out for when reading the factories’ summary of offers
- If you’re just starting out, be sure to check whether your chosen factor also finances new companies and start-ups – this is not a common rule.
- Also note how long the decision-making process takes. Some factoring companies even offer a decision in 24 hours.
- An element worth verifying is the documentation needed – it may turn out that a factoring company that seems like an excellent choice requires a lot more paperwork, the fulfillment of which obviously affects the timing of the service.
Keep in mind that you will not find all the important features of a given factor in the ranking of factoring companies. Many of them operate on basic data – so if you want to learn more, be sure to also visit the website of your chosen factor and see what they offer.
