One of the more onerous tasks of the companies, so expensive to his execution for losses to its incorrect implementation, as for the losses its incorrect implementation poses to the entity is the collection management.

Factoring for Smes







One of the more onerous tasks of the companies, so expensive to his execution for losses to its incorrect implementation, as for the losses its incorrect implementation poses to the entity is the collection management. The sale postponed to a client requires its subsequent follow-up, control and recovery procedures, which means that the company must devote a number of human, material and financial resources for these purposes. If the clients belong to places other than the issuing company of the credit this activity becomes more costly and complex.


Factoring is an operation of assignment of the receivable to charge by the company in favour of a financial institution normally. The credits, which are part of assignment, are instrumented in current operations of the company, usually the flow of sales of their products or services to third parties. In the case of sales, generates a credit in favour of the company supported the commercial operation that is likely to be transferred to a third party.


Factoring as such presents a series of services, which may include the following:

 Assume the credit risk, which is called non-recourse factoring. In this case, if the loan (company that has to pay the assignor) incurred in non-payment, the risk of the operation assumes it the financial institution.
The risk of change, if the invoice is in foreign currency.
To manage collection and not be responsible for the risk of non-payment; that is known as factoring with recourse. In this case, if the assignor unpaid operation, the assignor is who runs with the patrimonial hole.
Make the effective recovery of the credit
Financial and commercial advice of debtors.





The usual operation of factoring provides for the total or partial advance of credit given to the financial institution and except debtors of first quality and with very good credit rating, financial institutions carry out factoring with recourse factoring not containing the risk of non-payment in the financial institution. Obtaining financing through the advance payment of the invoices, the most important service that offer factoring companies, being East which has most contributed to its acceptance and great development in the international market.Factoring for Smes 



For example, if the company XYX has made a sale and why an invoice has to be cancelled 60 days worth of 1 million pesos, through the respective contract gives to the Factoring Company or Bank, which immediately gives an amount of money equivalent to 90% of the Bill. When it is fulfilled within 60 days, the Factoring Company or Bank will charge the original invoice to customer who will pay you directly and not to the XYX company which gave him the invoice, and will get the full amount, by what the difference will be your gain.



To hire the company factoring services, who is responsible for charging the receivables to maturity (documented in any form admitted to right: invoices, letters, promissory notes and others referred to in the legislation of each country), assumed the full cost of the collection management and recovery. Generally speaking, the assignor informs its customers the existence of the contract of factoring, letting them know who must make payments of invoices and effects.Factoring for Smes 


The assignor is not guaranteed the solvency of the debtor, but responds to the factoring of the legitimacy of the granted credit company. For its part, the factor assumes ownership of the credit, replacing the figure of the assignor.



Advantages
Saving time, cost savings, and accuracy of obtaining reports.
It allows the maximum mobilization of portfolio of debtors and guaranteed the payment of all of them.
Simplify accounting, already that through the contract of factoring the user happens to have only one client, who pays in cash.
Sanitation of the portfolio of clients.
You can receive advances of the assigned receivables.
Reduce the indebtedness of the contracting company. Not debt: buy firm and no recourse.
You can buy spot getting discounts.
For managers, saving time spent in monitor and lead the Organization of accounting of sales.
It can be used as a source of funding and resources circulating.
Invoices provide guarantee for a loan that otherwise the company would not be able to obtain.
Reduces costs of operation, to transfer accounts receivable to a company that is dedicated to the factorization.
Provides protection in inflationary processes to count the money in advance way, which does not lose purchasing power.
In the case of International Factoring, increase exports to offer a more competitive form of payment.
Elimination of the Collections Department of the company, as normally the factor accepts all the risks of credit must cover the costs of collection.
Ensures a known pattern of cash flows. The company that sells their accounts receivable knows that it receives the amount of accounts less the Commission of factorization on a date determined by the company cash flow planning what.


Factoring is a financial alternative that is aimed especially at SMEs. Normally, the factoring or "society factor" company works frequently with societies with stable export activity.Factoring for Smes 


Disadvantages of Factoring

High cost
Potential negative interference that may arise from the intentions for the recovery of the factor to debtors. Logically, they are not their customers and have no direct incentive to give them favor treatment. Implementation of a policy of risks by the factor that is stricter than the one maintained by the seller, with the possibility to affectation on the clientele and the sales of the latter.


In international practice, many of the factors are subsidiaries of commercial banks. In general commercial banks and other entities are those that have better conditions to develop factoring services. The essence and requirements of these operations the factors, to provide the services that you are inherent, must have an infrastructure that enables them to obtain, relatively low costs, information on debtors, perform the risk analysis corresponding to run the management of collections in different places, develop economies of scale to bring records, billing, as well as risk-taking and grant financing.


How to get factoring services

Determine need for a factoring operation
First we determine if we really need an operation of factoring; to do so, as well as taking into account the benefits that we can provide, we must take into account the cost of product.


Search for factoring company
Once convinced of the need for a factoring operation, we will seek a company factoring or bank or financial institution that offers this product; to decide for one we must take into account the interest rate and fees can charge as well as other factors such as its reputation and experience.



Request product
Once elected a factoring company, we went to this and ask for the product, which we will be awarded upon evaluation of the invoice, letter, promissory note, cheque or document subject to the factoring, as well as the debtor of it (after it has given corresponding financial information).

Sign contract
Once the factoring company has approved us credit, we will read and sign the contract, in which the factorado or client, the factor or factoring company, the rights and obligations of each of the parties, the duration of the contract, and the interests and commissions must be stipulated.


Collect debt
Finally, once the contract is signed, the factoring company pay us wholly or partially the amount of the value of the documents of debt that we have given them. In case of a partial payment, factoring company we will usually pay between 80 and 90% of the value of the documents, and arrival date of expiry thereof, pay us the remaining percentage less interest rate.
Factoring for Smes