Most of the concluded factoring agreements do not cover the whole scope of this service. Pursuant to them, if the debtor fails to pay within the period specified in the invoice, then the factored is obliged to settle the payment.
Before we succumb to the horrible vision of a wave of invoices hitting the company, let’s remember that factoring is used in situations when a commercial loan is needed for a really long period of time. Additionally, using this service will allow us to extend the period of waiting for payment for an even longer time. Finally, the debtor may receive as much time to settle the outstanding payments that even the tardiest ones should make it in time.
However, there is always the risk of insolvency and delays. If possible, transferring the whole responsibility for recovering the money to the factor, i.e. full factoring, is possible as part of this service. It is however charged with a higher margin. But there is another solution. Make sure that the factor collects debts as well.
Why? Payment delays happen too often to let unsettled invoices return to the company immediately. The factoring company should make an attempt to collect the debt amicably. Thus, the co-operation should be smooth, without any surprises and the return of an invoice should happen rarely.
To sum it up, a factoring agreement will allow us to offer our customers attractive payment terms. Including in the commercial agreement additional provisions stating that debt collection may be conducted by a specialised agency (if our factor offers such services) may motivate the debtor to stop asking for more time to pay.
Published on: 9 November 2016