What is factoring?

Factoring is a type of credit transfer operation that allows a company to obtain immediate liquidity. In other words, factoring is an operation that allows the company to have money quickly in advance for the collection of pending invoices that the company has from third parties without having to opt for the commercial discount.

Terms and conditions vary depending on the conditions of the entity (known as a factor) granting this advance. It is very common for factoring operations to be carried out by third parties that do not always have to be a bank. The terms of the return of this loan assignment may vary depending on the amount borrowed. Additionally, the commission percentage applied by the financial entities that grant it also varies although it is generally close to 3%.

Factoring is not considered a credit to use, nor does the entity granting it acquire the right to the debt as part of the transaction. The funds that the company obtains are also not subject to any use restrictions.

Like other types of financial transactions, factoring has advantages and disadvantages. Despite the fact that it is a relatively expensive way to finance a company, the companies that make the loan advance provide a very valuable service to companies that operate in industries or sectors where the time of payment of invoices is high as well as for companies that are growing fast and need money to take advantage of new business opportunities.

Know all the information about factoring and discover the different types that exist.

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