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How does factoring work?

Factoring means in practice that as soon as the invoice is issued and information is forwarded to Coface Poland Factoring, you will receive an advance on the financed receivables (up to 90% of the invoice value). The remaining part is paid out after payment by the recipient to the Factor's account (Coface).

how does it work

Factoring is a financial service for companies which sell goods and services to other companies or institutions via trade credit. The company issuing invoices can get great benefits from using factoring. It is a tripartite transaction in which the customer (factorer), recipients (debtors) and the financing party (Coface) take part. The entrepreneur selling the goods usually sets a payment date with the recipient the length of which can vary from industry to industry. However during this time you may need to pay for other charges such as wages, production materials or other overheads.
Factoring alleviates this issue. The entrepreneur sends an electronic invoice summary to the Factor who, depending on the factoring agreement, pays the customer an advance (up to 90% of the gross invoice value), the remaining part is sent immediately after the invoice is paid by the debtor. Thanks to this, the entrepreneur can use his money immediately after the sale, without waiting for the recipient to repay the receivable.

Advantages of factoring:

The conclusion of a factoring agreement is definitely faster than, for example, awaiting the decision to recieve a bank loan because it is based on other criteria. An important feature of factoring is the lack of obligation to establish material collateral, here the invoices (receivables) and the bill of exchange are the collateral. If the invoice is not paid by the recipient it results in a legal response from the factor that advises the debtor to pay. In the event of a persistent denial of payment, the factoring agent, upon the entrepreneur's request, has the opportunity to initiate debt collection.
Factoring companies have much higher financial liquidity, and also there are less exposed to bankruptcy, an additional benefit is increasing the enforcement of receivables through the activities of the factor.
The principle of how factoring works is to convert receivables into cash. The customer, following the sale of goods or services and upon issuing an invoice, sends an electronic bill of the invoices to Coface and then awaits the advance payment of those funds from Coface. Once received the customer releases some of the funds frozen in issued invoices and thereby increases their financial liquidity for the ongoing payment of the company's activity. If the transferred liability is settled by the recipient of the customer, then Coface pays the client the remaining part of the receivables resulting from the issued invoice. In the meantime, Coface conducts ongoing verification of the recipient.
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