Factoring: how to get money for chairs

Work with government customers is very specific. But many like it, everyone has different tastes.



State-owned companies often have a large procurement budget, which can provide the supplier with long-term work. On the other hand, there are enough features like 100% post-pay. In the purely commercial sphere, now no one wants to bear additional risks and, most likely, refuse to work with you if you do not make a significant prepayment before the actual delivery.



With a state customer, the situation usually looks like "the delivery of several wagons of goods now, and then you will get your money." If you still decide to eat this cactus, then I have an interesting tool for you - factoring.



In general, his main task is to replenish working capital. That is, the client receives financing, does not wait for the postponement to end, and participates in new tenders. But another invaluable plus is the reduction of non-payment risks, the possibility of obtaining financing under an executed contract.



In the evening, money - in the evening the same chairs.

When money may suddenly run out

There is such a sad thing - a sudden divergence between the income and expenses of the company. This is when a representative of the bank comes to you and insistently reminds you that your loan payment term has come. You just bought a couple of truck printer cartridges for this loan. And you, of course, would be very happy to pay right now, but the Novourozhuy Institute of Culverry and Beekeeping delays you in paying for the delivery, since they also did not receive money from the budget on time. Do you remember about 100% postpay? Extreme, in this case, you will certainly find yourself as a loan default.



In this situation, one has to incur tangible financial losses. For example, to take additional short-term loans at tasteless interest, to sell the remaining goods from the warehouse with big discounts, or to urgently sell one of the company's old trucks. The bank is usually not interested in your problems. He has clear loan repayment dates, which he also expects.

Debt is also a commodity

Everyone has heard about how companies sometimes sell their bad debts at a discount to get at least some money for them. In the case of factoring, we are not talking about "bad" debts. It is more likely a tool for removing risks and headaches for the supplier. Now I will explain how it works.



Imagine that you are the owner of a small but very decent company - LLC Ivan and Sons. You won the tender, according to which you pledged to supply 513 boxes of paper for the Snowman printer. Like most honest, but small companies, working capital is always in short supply. Therefore, under credit money you buy the right product in order to bring it to the customer. They will pay you in three months, but you must pay the bills now. If you are not ready to bear the risks of post-payment of goods by the customer, then simply request a factoring service from the trading platform.



A factoring company lends to suppliers by purchasing short-term receivables. Usually no more than 180 days. After the conclusion of the contract, the supplier receives payment for the goods according to the submitted payment documents from the factor, and not from the customer. At the same time, the factoring company usually gives the supplier 75–90% of the amount indicated on the invoice. After paying for the products by the buyer, the factor pays the rest of the amount to the supplier, withholding the interest for the loan and the commission for the services rendered.



Factoring can also be beneficial for a large buyer: very often suppliers offer additional discounts if payment is made immediately upon delivery. In this case, it may be more profitable to finance a transaction involving third-party funds.



Example. You are a farmer. You are not interested in poking around in financial details. You just make milk. Turn to the electronic trading platform and say that you would like to bid. They organize everything you need, advise on the procedure and accompany you in the process. You won the bid to supply a couple tons of milk to the yogurt factory. Under the terms of the contract, he promises to pay 100 thousand rubles three months after delivery. And you need to already buy feed for cows. Immediately after the bidding, you turn to the trading platform and ask for a factoring service. Conclude an agreement, then ship the milk tank, sign the invoice and get 90 thousand rubles from the factoring company. When the supplier pays 100,000 to the factoring company, she will give you the rest of the money minus her remuneration. Everyone is happy, you are engaged in your farm and do not climb into the terrible world of finance, where you are not welcome.

The era of colonization

This financial instrument is not new in itself. Separate elements of factoring were found in Ancient Mesopotamia and in Ancient Rome, providing the needs of merchants of that time.



This method received the greatest growth in the era of colonization, although the term itself included a wider range of transaction support services. Delicious peppers and vanilla are extracted somewhere far beyond the ocean, ships sail for months, and sales markets are here in rich Europe. A lot of time passed between deliveries and payments. The reverse version was also very common. Colonies demanded a lot of goods from the mother country for their growth: metal, tools, weapons and other necessary things in the life of a novice pioneer. European trading houses needed a trusted representative who would be well versed in the situation in the colony and take on financial risks, ensuring a continuous cash flow. Revolt in the colony or pirates again lut at sea - no matter. Cash must flow.



An important stage in the development of factoring is the appearance in England of the 17th century of the House of Factors. At that time, many large trading houses in Europe had their representatives in the colony factories. These colonies were led by factors that were also intermediaries in the sale of goods. They were required to have good knowledge of local customs and laws, conduct market assessments and evaluate the solvency of buyers. Most often, they also performed the tasks of storing and selling goods, looking for new customers and collected revenue.

Who bears the risks of non-payment

In this case, it is important for the bank to know that the buyer whose debts he finances is a large and reliable company. It’s simply because of their production cycle that it’s difficult to pay money immediately. That is, a deal for a bank carries fairly low risks. In this case, the factor will necessarily take its percentage for the service. And here two main options are possible: factoring with and without recourse.



When factoring without recourse, the factoring company assumes all risks. That is, you simply unloaded the goods, signed the documents and received the money. If anything, the customer’s problems with payments are no longer your concern. The factor will be independently engaged in obtaining debt.



If factoring with recourse was chosen as a tool, then you will be responsible for the factor if the customer does not pay.



How to start working with factoring? There is actually no strict chronology; a factoring agreement is usually framework and perpetual. It can be concluded at any stage.



Each company itself chooses the best option for itself in terms of payment terms, availability of recourse and the amount of remuneration for the factoring company. We are just trying to make the bidding simple and convenient.