What exactly is factoring?
Factoring is a financial service that allows a business to monetize its invoices instead of waiting for payment from customers. If you run a business and issue invoices with – for example – a 60-day payment deadline, you can submit them for factoring so that the funds due to your company are received immediately.
The entire factoring process is simple and intuitive, plus you can do all the paperwork online – without leaving home!
Types of factoring
There are many types of factoring – they differ, among other things, in the scope of services offered by the factor (factoring company or bank), but also in the extent or financial responsibility for the possible insolvency of counterparties. Most commonly, we divide factoring by the risk taken by the service providers and the openness of the operation: we speak – respectively – of full or partial factoring and silent or open factoring.
Full/ incomplete factoring – in the full option, the factoring company assumes responsibility for the possible insolvency of the counterparty. Incomplete factoring means that it is up to the entrepreneur who uses the service to ensure that his counterparty pays the invoice on time – so he will actually receive the money that he will have to pay back according to his contract with the factor. Whether he uses funds from the contractor or his own to do so is of secondary importance.
– Open factoring (overt factoring) means that a business must notify its customers of the sale of invoices it has previously issued to them. Silent factoring in the transportation industry, as in many others, is used when it is necessary to use factoring, but for various reasons we do not want to inform the counterparties about the sale of the invoice to the factoring company. At present, however, it is important to remember that the use of silent factoring is hindered by the white list of VAT taxpayers.
Factoring for transportation companies – why is it useful?
Issuing invoices with a distant due date is not unusual in the transportation industry. 30 or 60 days – these timeframes are normal for many entrepreneurs – this is due to industry conditions, long-standing practice and a complex network of suppliers.
Any invoice that we will have to wait two months to pay can be quite a problem for the company. Especially if it is for an unusually high amount or there are more such documents, it may be useful to use factoring. After all, obligations such as e-toll, leases, fuel cards or driver payments that a trucking company must pay cannot wait that long. The big problem in the transportation industry is not profitability, but liquidity, which is strained precisely by distant payment terms on invoices.
Instead of worrying about where we will get the money to cover the needs of the company, we can submit an invoice for financing in PragmaGO – this way we will receive the funds almost immediately (usually in no more than 2 hours!).
Factoring for transportation – ad hoc or permanent solution?
Depending on your situation, you can use factoring at PragmaGO on a one-time or permanent basis. Which solution is more beneficial?
If problems with payments from contractors are temporary – they have not occurred before and you do not expect a recurrence – it is worthwhile to
take advantage of invoice financing
. It’s a service where you submit an invoice or invoices for financing via an online form, confirm the terms of the agreement via SMS, and receive the money in as little as two hours.
Remember, however, that in this way you can finance sales documents of 500 to 250 thousand zlotys! It’s also a great way to test factoring – if you’re not sure if factoring is the service for you, invoice financing is a good choice to start with. Instead of tying yourself to a permanent contract right away, you simply check whether such a service suits you and actually translates into better business prosperity. If everything goes according to plan, and you want to dismiss the risk of payment bottlenecks already permanently, use online factoring.
Online factoring is what permanent financing is all about – under this option factoring costs are lower, and the maximum amount you can finance is increasing Up to one million zlotys! If you opt for this financing option, you will probably be happy to know that when you sign the factoring agreement a global assignment is drawn up, which covers all customers whose invoices you want to finance with the help of factoring – from now on you don’t have to sign any additional papers! Each invoice you submit, issued to a ceded counterparty, will be financed as long as there are still funds available in the factoring limit assigned to your account.