Factoring at a glance
The definition of factoring can be summed up in a few words: it is a service aimed at entrepreneurs who need access to funds “frozen” in receivables with long payment terms. Taking advantage of factoring allows you to sell your receivables to a bank or factoring company, which in return pays the factor immediately. As a result, the entrepreneur regains liquidity immediately, and the debtor pays the receivable to the factoring company’s account instead of his counterparty.
Open factoring
The most popular and cheapest form of factoring is the explicit variety. If you choose this type of service, the debtor’s consent to the assignment of claims is required. Once it is obtained, the factor (i.e., the entrepreneur using factoring) disposes of the receivable to the factor (the institution providing the service). The factoring company then receives about 80-90 percent of the amount due (the remainder will be paid after final payment from the recipient).
From the moment the assignment is concluded, the debtor is aware that the receivable belongs to a professional factoring company and it is to their account that they will pay the receivable. The factor, which cares about recovering the money, will take care of the full service – it will regularly contact the counterparty, as well as send notifications about the upcoming repayment deadline. If necessary, he will also draft a pre-trial demand for payment or other documents.
Open factoring is characterized by the fact that it is easier to obtain. Since the counterparty is aware that its debt will be transferred to the factoring company, the company can make a financial assessment of the debtor and it will determine the possibility of factoring – the finances of the factor are not crucial in this case.
What’s more, an entrepreneur opting for open factoring can deduct the cost of the service from his income, and thus pay less tax.
Silent / hidden factoring
This type of factoring is otherwise known as secret or hidden factoring. The general principles are almost identical to those of overt factoring. Here, too, the company seeks to regain liquidity by selling receivables to a factoring company. This time, however, the idea is that the contractor is not aware of the change taking place.
Silent factoring is most often chosen by those Entrepreneurs who do not want to risk the deterioration of business relationships with customers. After all, using the services of a factoring company may be perceived as a sign of mistrust for the counterparty, while the truth may lie somewhere else (there are situations in which a company needs immediate repayment, even though the deadline is still far away and not related to this particular transaction).
Another reason for using secret factoring is the lack of counterparty consent to the assignment of receivables (or the belief that it is difficult to obtain). Under Polish law, it is not required, unless such a requirement is contractually stipulated, but in order – and here we return to the previous point – not to jeopardize the relationship with the client, it is worth considering the possibility of using hidden financing. This is also the only way to circumvent the prohibition on assignment written into the contract.
Costs of overt and covert (secret) factoring
Undisclosed factoring is characterized by higher service fees than its overt form. The reason for this is primarily the high risk taken by the factoring company. As the counterparty is not informed of the factoring company’s assumption of the claim, it settles the payment directly to the customer (who is its business counterparty). This condition puts the financial institution (factor) in a less comfortable position, which translates into higher fees with this form of factoring service.
In conclusion, it is worth saying that open factoring is by far the more popular and form, assuming transparency and full cooperation with counterparties. Secret factoring is recommended to be used when necessary. If you want to know more about the cost of factoring, check out our guide The cost of factoring without secrets – interest, percentages and commissions .
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21.10.2026 
