Benefits of factoring
The factoring agreement, depending on its configuration, can lead to numerous benefits. These are, in particular:
- funding for current activities – prepayments - allowing access to the financial resources that would have been "frozen" in the issued invoices whilst maintaining long terms of payment for buyers;
- ledger administration – accounting of invoices, monitoring of settlements’ status – hence releasing the supplier from cumbersome and time-consuming administrative duties;
- protection against late payments - guaranteed payment within a certain period - reducing the negative effects of delays in payments or even protracted buyer default;
- reduction of risk – protection against bad debts - allowing to feel safe in cooperation with new buyers;
- regulation of cash flow cycles - easy access to assets due from issued invoices - allowing cash flow to be adjusted according to own payment terms;
- improvement of financial planning - flexibility of the factoring agreement and guarantee of payment – helping cash flows to be planned precisely and efficiency of funds to be increased;
- optimization of financial costs -flexibility of cash flows - allowing financial costs to be shaped freely by matching financing with real needs for capital;
- improvement of balance sheet – turning receivables into cash – allowing reduction of the balance sheet total, better reporting of the activity results and improvement of creditworthiness.
- optimization of buyers’ portfolio - assessment of the buyers’ financial situation - allowing the supplier to focus on cooperation with the best buyers and to eliminate those who do not fit the necessary requisites;
- improvement of competitiveness – adjusting the agreement to current needs - helping to increase competitiveness without reducing the profitability of possible transactions;
- improvement of image with own suppliers – gaining independence from the buyers’ situation - improving the ability to pay own liabilities faster and hence obtaining rebates and discounts;
- improvement of relations with buyers - transfer of day-to-day contact to the factoring company - entrusting the factor with the administrative responsibilities that may lead to disputes, hence enabling existing good relationships with the buyers to be maintained over time;
- financing of investments - prepayments of receivables - supporting investment processes and helping to optimize the use of external funds.