Even if we currently do not encounter problems with temporary disturbances of liquidity, it is worth to be prepared for such possibility. To this end, we can familiarise with the offers of companies specialising in trade in receivables. It may turn out that in some situations, it would be optimum solution to make use of their services.
Such companies render a variety of services, by which they may grant funds for their customers directly upon contract signing. Some of them pay some part of receivables, in the form of advances towards future repayments on part of the debtor within the framework of debt collection services. If fit proves impossible to recover the receivables, we receive working funds for some time that we can freely use. Even if the debtor turns out to be insolvent, the advance may be treated as an interest-free loan. This is because a debt collecting company does not take additional remuneration fir capital use within the framework of this service, even if it has not earned a commission on recovered amounts. Additionally, specialised companies credit court fees, which may amount to – with high values of receivable – even several dozen or so thousand PLN, and we may treat them as working funds.
There is also great interest in the service consisting in purchase and sale of receivables. Let us remember that if we want to get good price, the receivable must be of good quality. In practice, we face the choice whether to sell our receivable quickly and at a higher price or later and at a lower price. Do not forget that we can also sell a non-payable receivable, thus shortening the time of waiting for the delivered goods or performed service.
Many entrepreneurs are also familiarised with the rules governing factoring services. Classic factoring consists in financing the whole turnover of the company (or its part) based on trade credit, i.e. when the factor pays out the values stated on invoices immediately after their issuance, against proper remuneration. There are many options of this service. Receivable trade companies also render services covering single receivables. Occasionally, financing one invoice only will be more expensive in unit terms than covering it with classic factoring. However, it is worth – first of all – analysing the needs of our enterprise in this respect.
If we do not need such a form of financing on a continuous basis, but only during some periods, we should calculate a total amount of remuneration in case of cheaper classic factoring, where the commission involves the whole turnover, or more expensive occasional factoring, where we choose the invoices to be financed. We shall calculate which option to choose. It is also worth knowing that factors other than banks have lower requirements to accept transactions to finance and their services often serve as payment monitoring that disciplines payers.
Those entrepreneurs who want to extend their payment deadlines at the customers may also choose reverse factoring option. Receivable trade companies may also offer hybrid service and cover also payable receivables. If we keep in touch with our debtor, but cannot wait for our money any longer, we can also ask the receivable trade company to cover it with its financing.
The costs of financing may be incurred by the creditor, debtor or both of them, depending on the chosen option. The debtor has additional period fixed to repay its receivable, but it incurs the cost of capital paid out to the creditor.
Particularly in the time or huge infrastructural projects, entrepreneurs have opportunity to get big orders, but they are afraid of their capabilities to pay high production costs. Within the framework of order-related factoring service, an entrepreneur gets financing as early as at the production stage, thus it can use it to pay for the materials. A standard security is a transfer of ownership of the manufactured goods and when the corresponding invoice is issued, the assignment of receivables in favour of the financing party. However, there are as many order-related factoring agreements as there are financed projects.
Receivable trade companies also grant loans for business activity purposes and they treat non-payable receivables and payable receivables as valuable security. Thus, if we do not have non-current assets it does not automatically mean we have no chance to get it.
Prudence, not necessity
Many entrepreneurs treat services rendered by debt collection companies as the last resort and they use them only when their receivables become hardly recoverable. This way they close opportunity to use capital offered by such companies. In the period of capital deficiency on the market, lack of knowledge about offers from receivable trade companies may deprive our company of some development opportunities.
Published on: 14 November 2016