Definition of
Factoring is a service that allows businesses to sell issued invoices that have not yet passed their due date. This is especially useful for all entrepreneurs who issue invoices with deferred payment. With the security of factoring, companies can grow and invest without hindrance, while still having funds available. As it stands today, factoring is most often offered 100% online – from application, to offer acceptance, to document submission and disbursement of funds. Online factoring is otherwise known as efactoring.
How to finance invoices using efactoring?
The service allows entrepreneurs who issue deferred payment invoices to access the funds due to them much faster. Three entities are involved in the entire process:
- Factor, which is a company using efactoring, issuing invoices with deferred payment,
- Factor, which is the company that provides the efactoring service,
- The recipient, or counterparty – a company to which the factor invoices for goods delivered or services rendered.
A factor can sell receivables to a factor, and in return receive a transfer of funds to a company account in as little as 2 hours, well before the due date. The recipient’s task, in turn, will be to pay the amount due to the factor on time.
How does efactoring work? Step by step
To get an idea of the full potential of efactoring, let’s take a look at the entire process – in the case of factoring at PragmaGO, it can be summarized in just a few steps.
Step one: issue a deferred payment invoice
In many cases, deferred payment is a must – the industry is used to such practices, and contractors directly expect it. So, for obvious reasons, you issue documents with 30-day, 60-day, or even longer payment terms.
One or a few such payments for insignificant amounts are unlikely to jeopardize the liquidity of your business, but when more such transactions occur in a short period of time or involve the performance of expensive services, problems may arise. It’s time to move on to the next step.
Step two: send an efactoring application
Filling out the form is done on the PragmaGO website and is free of charge. The proposal itself is in no way binding. Remember, however, that you must verify the company’s bank account number. This usually requires the use of the Kontomatik app or the execution of a return verification transfer.
Sending an application results in receiving a personalized factoring offer. Based on the data from the form, the factor makes a preliminary assessment and verifies your recipients – this allows it to make a specific proposal.
Step three: talk to your advisor
Before you even receive an individual efactoring quote, you will be contacted by an advisor who will tell you more about the service, if necessary, and clarify any doubts that may arise.
After the consultation, you will receive a customized offer, constructed specifically for your company, based on the information you provide in the application.
Step four: make a decision and sign the contract
When you express your willingness to sign a contract, you will receive a decision on the allocation of a factoring limit – this is a pool of funds secured for the purpose of financing the invoices you submit to the system. Along with the decision will also come to you a contract, which you can sign online.
Factors offering an efactoring service also give the option to sign the contract traditionally, if the customer so desires. You can use such an option in PragmaGO as well. There will still be no need to leave your home or office – we will arrange for a courier service to come to your address with the document ready for signature.
Costs of the efactoring service
The use of efactoring is subject to a factoring commission – this is a percentage or amount cost, depending on the type of factoring chosen (rate or flat rate, respectively). Before deciding on financing, PragmaGO consultants will present your company with the terms of use, including costs and any fees.
It is worth remembering that there are many types of factoring – for example, incomplete factoring or international factoring. Their costs can differ significantly from each other. For this reason, we encourage you to take advantage of the opportunity to ask your advisor questions during the telephone consultation, which we wrote about in step three of the previous section of this article.
Learn more about the cost of factoring in our guide: Factoring cost without secrets!
How to use efactoring?
The use of an efactoring service may vary somewhat depending on which factor your company has established a relationship with – a lot also depends on the type of factoring chosen and your company’s needs. So let’s explain how to use this service at PragmaGO.
With access to the Customer Zone, you can report issued sales documents, whose due date has not yet passed, for financing there. If the counterparty is already on the list of recipients, just send the document and wait for the funds. When you first use efactoring with PragmaGO, it is necessary to conclude an assignment of receivables. At PragmaGO, we use a global assignment, which the counterparty only has to accept once.
Factoring limit
Within the framework of cooperation with PragmaGO, your company will be granted a factoring limit from PLN 50,000 to PLN 15,000,000. We also finance in euros. We offer limits from EUR 11,000 to EUR 3,330,000. This is the amount you can use for financing. It is revolving in nature, which means that each receivable paid by the counterparty restores the corresponding amount to the pool.
Example:
Ms. Maria applied for a factoring limit of PLN 500,000 for her company. In May, she reported three invoices totaling PLN 220,000 for financing. This means he still has PLN 280,000 to use in the limit.
One of the contractors of Ms. Maria’s company paid the amount due after two weeks. His invoice was for PLN 72,000. As of now, Ms. Maria can enjoy a limit of 352,000 zlotys.
It is also worth remembering that you can request an increase in the limit if necessary – if the cooperation between your company and the factor is exemplary and your contractors pay on time, there should be no problem with this.
Who can benefit from efactoring?
Efactoring is available to micro, small and medium-sized companies – regardless of how many employees they have or what industry they operate in.
What’s more, at PragmaGO we also finance startups – so you can benefit from efactoring even if you are just starting out as an entrepreneur. In this way, we provide opportunities for growing companies. The basis of financing is to establish partnerships with viable, reliable contractors.
Summary
The e-invoicing service is a solution that allows entrepreneurs to finance invoices issued with deferred payment terms of up to 120 days. Factoring helps preserve liquidity for companies that would normally have to wait a long time for payment from their counterparties.
