Opportunities You Must Grab for the Factoring Companies

Factoring is a commercial contract by which a merchant or an industrialist who holds claims (the seller) and a financing and collection company, called a factor or factoring company, undertake respectively:

The seller undertakes to transfer to the factor the claims he holds on his clients

The factor undertakes to collect all these claims and to pay the seller, by subrogation, the amount of the claims he has agreed to guarantee. In return for the service rendered, the factor receives a remuneration proportional to the volume of the operations made and the making available of the payments made by him. For the factoring companies this is an essential step.

What is the practical interest of factoring?

It presents companies with advantages in several areas:

  1. Cash: Factoring allows faster mobilization of customer accounts than usual banking mechanisms. This results in a better presentation of the balance sheet and leaves the seller’s borrowing capacity intact.
  2. Credit security: the factor guarantee gives the seller the benefit of a much faster payment and a better security of the debtor risk guarantee than the credit insurance. The authorizations given by the factor thus have a security that the usual information of solvency on the customers are far from being worth. As a result, factoring retains the attention of companies dealing with a new clientele.
  3. Administrative and accounting organization: It would be an exaggeration to think that factoring removes all administrative burdens, since invoices must always be established. But it does result in a simplification of all the entries that can be transferred from the accounts receivable to the unique account of the factor. It relieves the company of all the burden of recovery (reminders, litigation), but the member must give his factor any useful assistance by providing the necessary documents for prosecution.

Why conventional subrogation?

The legal technique that dominates the contract is that of subrogation. By registering in a current account, the seller receives from the factor the amount of the receivables he has transmitted to the factor materialized by the invoices grouped on a slip acting as a subrogative receipt. The participant subrogates the factor in all his rights, shares or sureties attached to these claims. For all the claims for which he has credited the amount to his member, the factor acts against the debtor in his capacity as subrogated, which gives him a personal right against the customers of his member.

Note: the promoters of the Daily Act assignment and pledge of receivables of 2 January 1981 had thought that this law could provide a legal basis for factoring; the decree of 9 September 1981 does contain a provision concerning it. But the practice sticks largely to the conventional subrogation technique.

What are the distinctions to know?

Like discounting, factoring allows the mobilization of trade receivables; but it is not necessarily based on the issue of bills of exchange, mobilizing bills. In addition, it comes with exclusivity and requires prior authorization factor while the banker refuse to accept retrospectively dubious effects.

Comments are closed.