Main types of factoring
Factoring operations have become widespread in the financial sector. Various forms of factoring have emerged, which are discussed below in a more detailed classification.
Internal and external (international)
The division occurs depending on the participants in the process. Factoring banks and the parties to the transaction (seller/buyer) who entered into contractual relations are located in the same country - the internal type. If the debtor and creditor are representatives of different countries, such factoring will be external.
In international transactions, the romania email list indirect factoring method is used to equally divide the obligations between the supplier of goods and the client. The financial agent of the first party is responsible for providing funds to the seller. On the other hand, the debtor's factor company is responsible for the timely and complete collection of the debt, and also monitors possible risks.
International factoring has certain advantages if the purchase and sale relations are conducted between residents of states in which there is a significant difference in the laws of the economic and legal sectors. Therefore, when analyzing and assessing the financial condition of the buyer, the factoring company must be located in the debtor's country: this way it will be able to more objectively assess the reliability and solvency of the client.
The buyer's factor agrees to implement the international scheme, which means that the import factor assumes responsibility for credit risks and possible insolvency of the buyer. In this case, the supplier of goods has an absolute guarantee of the return of the invested funds. In transactions with different currencies, the exporter can also insure himself against exchange rate fluctuations.
An external financial scheme can exclude an intermediary on the buyer's side (import factor). Then the procedure is carried out according to the internal factoring scheme. With international factoring, the seller receives certain advantages - not only up to 90% of the total amount of the shipped goods almost instantly, but also the absence of currency and monetary risks when the exchange rate jumps.
Factoring with and without recourse
In the first case, the financial agent, who is a third party between the seller and the buyer, has not received the prescribed payment for the goods from the debtor. As a result, the intermediary has the right to present factoring claims to the seller. Factoring without recourse assumes that the risks of non-payment of accounts receivable are completely transferred to the factoring company. The financial scheme with recourse divides the liquidity (possibility of non-payment) and credit risks between the agent and the seller respectively. This ensures short-term financing.
Open and closed
If the seller decides to use the first type of factoring, then the buyer is informed about the presence of a third party - a factoring enterprise. The accounts receivable will be transferred to the financial agent within the specified time frame.
In the case of a closed type, only the seller and the factor know about the presence of factoring credit. Then the client pays off the debts to the creditor, who independently pays for the services of the factoring company.
In practice, factoring with recourse is used both open and closed, and without recourse - only open. There is also a type of service with partial recourse, in which credit and liquidity risks are shared between the factoring enterprise and the client.