As with any other area within the financial sector, it is not all about benefits. When considering a transaction of this type, companies/organisations must consider both the pros and cons.
These are the main negative aspects to take into account when considering a transaction with a factoring company.
High financial cost . As you can imagine, the business of the firms that provide this service is largely based on the interest on each transaction. That is, the commissions.
This usually varies both in terms of the amount of money and the maturity dates, whether insurance is taken out, etc. Sometimes it could mean the final exhaustion of a company if an agreement is not reached with optimal conditions for both parties.
Image given to the customer . It can damage the reputation of a business in the eyes of potential buyers/users of your products and/or services.
This is another drawback of factoring. It can convey that one is going through a difficult financial situation.
It is not within the reach of any company . Factoring china whatsapp data companies carefully assess the type of companies they are going to work with, taking solvency into account as the main aspect.
Disadvantages for the clients of the contracting company . Borrowers of this financing tool could see their capabilities and ability to negotiate with the factoring company, both amounts and payment terms, among other aspects, limited.
These are, broadly speaking, the main disadvantages of accessing this type of financial instruments and it is important to know the contractual points in detail to really assess what it can do to help the company that hires a factoring service .
Types of Factoring
There are different types of factoring , with different conditions and terms. These are the four most well-known modalities, as stated by the Spanish Factoring Association:
Non-recourse factoring : the factoring entity assumes the risk of insolvency of the debtor company/person.
Recourse factoring : the client is responsible for the solvency of the debtor.
Factoring with notification : when the credit is assigned and the debtor is informed of this, and is obliged to pay the invoice according to the terms that have been established.
Factoring without notification : the debtor pays the assignor directly, as he is not notified that the debt has been assigned. The debtor then pays the outstanding amount to the company.
Factoring is a financial instrument that has become increasingly widespread in the business world. It is currently a tool that must be taken into account by all types of corporations, which is why it is covered in such specialized training courses as the Master's Degree in Finance or the Master's Degree in Financial Management . It is a practice with a long history and recognition and it is important that those professionals who want to develop their career in the world of economics and business management are aware of what factoring is and what implications it can have on the success of a company.