Factoring of accounts receivable by enterprises is a low-cost financing that can speed up capital turnover and enhance sales capabilities. So how do you understand factoring of accounts receivable? What are the categories?

What does factoring of accounts receivable mean?

Accounts receivable factoring is when an enterprise transfers its unexpired accounts receivable from credit sales to a commercial bank if certain conditions are met, in order to obtain liquidity support from the bank and speed up capital turnover. .

What are the factoring classifications of accounts receivable?

According to whether the factor has recourse

Factoring with recourse (non-buyout type): The supplier transfers the creditor's rights to the factor, and the supplier transfers the creditor's rights to the factor. After the factoring has financed monetary funds, if the buyer refuses to pay or is unable to pay, the factor has the right to demand repayment of the prepaid monetary funds from the supplier. If the buyer goes bankrupt or is unable to pay, as long as the relevant payment cannot be recovered when due, the factor will Factors have the right of recourse against suppliers, so factors have full “rights of recourse”.

Non-recourse factoring (buyout type): means that the factor completely buys out the sales contract and assumes all collection risks.

Depending on whether the buyer is notified of the factoring situation

Explicit factoring: means that the factor and the supplier need to notify the buyer of the transfer of the sales contract and sign a guarantee A three-party contract between the agent, supplier and purchaser.

Secret factoring: In order to avoid letting customers know that it transfers accounts receivable due to insufficient liquidity, the supplier does not notify the customer of the transfer of creditor's rights, and the seller still calls for payment when the payment is due. loan, and then repay the loan to the bank.

Depending on whether prepaid account financing is provided

Discount factoring (financing factoring): that is, before the expiration of the sales contract, the factor will prepay the remaining uncollected portion to Sellers generally do not exceed 70% to 90% of the total contract value.

Maturity factoring: means that the factor does not provide advance payment financing, but pays when the credit sale expires. At that time, the factor must pay the seller regardless of whether the payment is received or not. .

What are the business processes for factoring accounts receivable?

The accounts receivable factoring business process is as follows:

1. The seller enterprise signs a factoring agreement with the factor. Generally, the seller needs to transfer the qualified accounts receivable generated through credit sales to The money is sold to factoring companies.

2. After signing the agreement, for non-recourse factoring, the factor must first deal with the customers of the seller's company.

3. Conduct a credit evaluation and approve a credit limit for the customer, and the accounts receivable within this credit limit become

approved

accounts receivable.

4. For this part of accounts receivable, when the seller’s customers are unable to pay, the factoring company has no recourse against the seller.

5. When payment is made, the factor will seek recourse from the seller and recover the financing provided to it.