What Special Options You Can Have for the Factoring Options

The Bank, while servicing clients, can also provide them with factoring services. Factoring is an assignment to a bank of unpaid debt claims arising between counteragents in the process of selling products (goods, works, services), and is a type of trade and commission transaction.

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The purpose of factoring operations is the timely collection of debts to reduce losses from deferred payment and prevent the appearance of bad debts. The use of factoring speeds up the receipt of most payments, guarantees full repayment of debts, reduces the costs associated with keeping accounts, and ensures the timely receipt of payments to suppliers in the presence of temporary financial difficulties for payers. The factoring loans solutions are perfect in this matter now.

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In the country, factoring operations began to be used for the first time in Leningrad in 1989 and later became widespread in many banks of the country. To conduct such operations in banks, departments or factoring groups are created. They are separate structural divisions of banks, acting on the principles of commercial settlement. The factoring department can be conditionally called a “bank inside the bank”. These units have revolving funds, the source of formation of which is the bank’s own funds (profit, funds) and funds attracted by factoring.

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The relationship between them is established by the bank’s board. In addition, if the factoring department needs to attract additional sources to fulfill its obligations, the bank provides him with a short-term loan. The economic authorities can also provide the factoring department with temporarily available funds for a certain period of time for a fee, which is stipulated in contracts by agreement of the parties. There are also other ways to raise funds for the activity of the factoring department. For example, attracting various deposits or issuing and selling bonds with a fixed annual income. Due to its profits, the factoring department (group) of the bank creates a reserve fund.

The Proper Operations

All operations of the factoring department are accounted for on a separate active-passive account “Bank calculations on factoring transactions”. In the analytical account separate accounts are maintained for each supplier. The results of the activity of the factoring department are included in the general balance of the bank. In factoring operations, three parties are involved:

  1. Factor-intermediary, in whose role the bank acts in the person of its factoring subdivision.
  2. The Supplier.
  3. The buyer.

It watches over the financial condition of suppliers and the solvency of their customers

In terms of the composition of the services provided, factoring can be conventional or confidential. The first is a system of financial services to customers, including accounting, settlements with suppliers and buyers, insurance, lending, representation, etc. The customer retains only the production function. With this form of factoring, enterprises can refuse to maintain their own staff of employees performing the functions that the factoring bank is taking over. This helps to reduce the costs of production and sales of products while maintaining full commercial independence.