It is the advance payment of a certain ratio of the short-term and invoice-based receivables, arising from sales of goods and services, to the customer.
The ratio of the advance payment made varies by the factoring interest that is determined depending on the due date and amount of receivable and the market conditions.
With the financing service, the post-dated receivables of the seller firm are turned into cash and the assets structure of its balance becomes more liquid, thus the firm gets a regular cash flow.
It is the guarantee of receivables in case the buyer firm, in favor of which a limit has been allocated, becomes insolvent, provided that the conditions of the agreement concluded between the factoring company and the seller firm are fulfilled.
Delivery in full of the goods purchased is one of the most important conditions.
This service provides particularly the exporters with the opportunity of finding new customers in foreign markets and having no risk with the guarantee limits provided.
Firms can collect the post-dated amounts of the goods and services they have sold, through factoring companies.
The collection service offers firms the opportunity to save on the number of employees and operational business processes.