Factoring Company
Factoring companies take over existing receivables from their customers, which the latter have as a creditor towards third parties. Factoring is available in a variety of forms. The most common variants in the range of products offered by factoring institutions include, for example, due date factoring, real and unreal factoring or standard factoring. On the one hand, the company receives its liquidity by selling the receivables to the factoring company. Thus, factoring is a suitable means of financing for many companies, as it allows them to reduce their balance sheet. On the other hand, factoring companies offer equally versatile services. For example, factoring institutions offer to take over the management of receivables. This includes protection against bad debts as well as dunning and collection services. At present, more than 20 factoring companies are members of the German Factoring Association, which together handle a large proportion of the factoring volume in Germany.
Factoring for companies
Customers of factoring companies hand over receivables to the factor. Different functions can be identified from which the factoring customers benefit. The financing function means that the factoring companies make the receivable countervalue freely available to their customers. This significantly increases financial planning, as the imponderables associated with receivables management are eliminated. Another important function of factoring is the del credere function. If a factoring institute assumes the del credere risk, the client receives protection against payment defaults based on insolvency. Within factoring, a distinction is made between different forms. In addition to in-house factoring, factoring companies often take on full-service factoring and due date factoring in equal measure.
Service functions of factoring
Another important aspect is the service function of factoring companies. A company transfers its accounts receivable to the factor and thus avoids having to operate its own accounts receivable management. Receivables are taken over by the factoring company, which is responsible for both dunning and collection. Similarly important in this context is the ongoing credit assessment of customers by the factor.
