Most of the entrepreneurs perceive credits as the only opportunity to finance current activity. Why it is worth considering to replace it with factoring?
The first obstacle to get a credit is creditworthiness of the company, or rather lack of it. Requirements of the banks are frequently very restrictive and many companies – in particular small and medium ones – are simply not able to meet them.
In case of factoring, it is the counterparty’s solvency that matters. Frequently, it is a smaller company that acts as a supplier to a big company of good financial standing and recognisability.
Additionally, a factor may also assume the risk of the counterparty’s insolvency (through the so-called non-recourse factoring). It is an additional benefit, thanks to which the company owner may protect against the risk of insolvency of its debtors.
Moreover, a factor takes over the management of receivables, verifies the credibility of counterparties, monitors repayments, manages the whole portfolio of receivables, and – when need arises – commences actions aiming at their effective recovery.
Indeed, factoring is a more complementary than competitive service towards a credit. Financing current activity through factoring service does not prevent a company from getting a credit or dispose of working assets or funds intended, e.g. for investment purposes.
Published on: 14 November 2016