What is factoring? Factoring is a financial instrument whereby a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate cash with which to finance continued business. In other words, it’s a method of raising short-term funds to increase the cash flow cycle accompanied by an improvement in the liquidity as well as the profitability
What does factoring offers? (The elements of factoring).
Administration: Egypt Factors will take care of a complete debtor book-keeping and monitor and follow-up all outstanding invoices. All collection measures will be professionally taken care of by Egypt Factors - in more than 67 countries around the world. It bridges differences in mentalities, languages, market habits as well as in the legal environment.
Bad Debt Protection: Egypt Factors ensures that your invoices will be paid. In the frame of “Credit Limits” established for each individual buyer –the payment is guaranteed up to the agreed percentage in case of the financial inability of such buyer to settle the receivable. We will pay instead after an agreed period of time after the due date of the initial invoice. The seller would only have full responsibility for a proper performance as to his part of the underlying supply agreement.
Advances / Funding: Your sales on open account terms (deferred payment terms) will turn into cash sales. Up to the agreed percentage all receivables will be funded immediately. Your cash flow needs will be covered the moment you are shipping and invoicing. Should a Bad Debt Protection not be agreed on the seller would have ultimate responsibility for the payment of the receivables.
Who needs factoring? When cash flows decline drastically, the business will need large amounts of cash from either existing cash balances or from a factor to cover its obligations during this period of time. Also, Companies of poor credit determination, bookkeeping or collection can utilize factoring to save manpower expense or to bring better collection results. Factoring include granting bad debt protection that makes cash flow predictable. Factoring can be tailored to the specific needs of a client and defined to meet the unique requirements of each and every company.
Categories of factoring Factoring main classification is either “Non-Recourse” or "Recourse". • Non-Recourse: receivables are purchased by the factoring company, with a full balance sheet effect of change in debt ownership, since the receivables are enforceable. • Recourse: the ownership of the receivables stays with the seller, with the factor's right to claims against the client in case of account debtor insolvencies or none payment .