Briefly about factoring
Factoring in its most basic sense is an invoice financing service. It works in a simple way – I will explain with an example:
EXAMPLE
Mr. Stanislaw runs a transportation company. It employs several drivers who perform freight for regular contractors. For services rendered, he issues invoices with a typical deferred payment period of 60 days. However, Mr. Stanislaw must pay each month, among other things. salaries for their employees, as well as pay lease payments, fuel cards and viatoll. Waiting two months for cash becomes problematic for him, especially when unforeseen expenses such as repairs come up. Factoring unmatured invoices issued to customers may be the solution to his problems.
In the situation described, waiting 60 days to repay the obligation is out of the question, so Mr. Stanislaw can – instead of taking out a quick loan at a high interest rate – contact a factoring company and get the money owed to him sooner in a few simple steps. This is what the factoring process will look like if Mr. Stanislaw decides to use PragmaGO’s services:
EXAMPLE
First, Mr. Stanislaw fills out an online application on the factor’s website , where he enters basic information about his company, the details of his customers and the financing limit he is interested in. Mr. Stanislaw receives a detailed offer within 24 hours, along with the terms of the decision. After signing a factoring agreement, he can conveniently submit invoices for financing through the Customer Zone when he needs it.
Who provides the factoring service?
Factoring companies, such as PragmaGO, and some banks provide factoring services in Poland. The entity providing factoring is called a factor.
Who can benefit from factoring?
Factoring can be used by any registered entrepreneur, regardless of the industry in which he operates and how long he has been in business. Undoubtedly, this is one of the major benefits of factoring. The only condition to take advantage of it is that the invoice the entrepreneur wants to finance must be unmatured – it must be submitted for factoring before the due date.
An entrepreneur using factoring is called a factor.
Advantages and disadvantages of factoring
Factoring – benefits
Among the biggest advantages of factoring is certainly the speed of action – if you apply for factoring online on a business day, you can receive a decision up to 24 hours! Once the agreement with the factor is concluded and the assignment is established, the funds from the invoices submitted for financing are credited to the customer’s account immediately.
Factoring is also a reliable way to instantly improve a company’s liquidity ratio – this is of considerable importance if the company plans to make investments or take out a loan in the future.
Another benefit of factoring is its accessibility – unlike a bank loan, a factor does not have to run a business for a minimum of one year, and even the smallest business can benefit from factoring. The factoring service is available even without creditworthiness.
Another advantage of factoring is the simplicity of operation. Forget about the complicated procedures, crooks and a dozen pages of addenda, here the matter is extremely simple: choosing PragmaGO, you fill out the application online. You also submit invoices for factoring financing online. What’s more, you can do it anytime through the Customer Zone available 24/7.
One form of factoring also allows you to transfer the risk of the debtor’s insolvency to the factor – using such a solution increases the cost of factoring, but allows you to practically forget about the unpaid receivable the moment you receive the funds in your account.
What distinguishes factoring from other financial services is also a wide range of additional services, such as insurance, monitoring of receivables or comprehensive handling of them.
Disadvantages of factoring
Like any solution, factoring has disadvantages in addition to advantages. Among the most obvious ones is the need to pay a commission – however, it is worth mentioning that this is not an amount that the entrepreneur must physically own at the time of entering into a factoring agreement. This is because the set amount will be deducted from the value of the invoice sold, which makes the fundraising process even easier.
Very often one can encounter the opinion that a disadvantage of factoring is that it can contribute to the deterioration of the relationship with the counterparty – because an important feature of open factoring is the necessity to inform the company to which the invoice is sold about the establishment of cooperation with the factor.
However, this is not a sign of mistrust on the part of the entrepreneur who has decided to use factoring. By confirming the assignment, the recipient gives its business partner a chance to provide even better service.
As you can see, factoring clearly has more advantages than disadvantages. Another argument in favor of this service is that it has been steadily gaining popularity among Polish entrepreneurs for several years.
