Understand more deeply what factoring is and its benefits

“Factoring can be a solution for financing bad debts. Before using it, it’s a good idea for you to understand the benefits below so you can use it optimally.”

Factoring or better known as factoring is a financing solution that can help transfer business receivables to third parties. With factoring , companies can obtain cash quickly from their accounts receivable.

For those of you who want to sell receivables to third parties, you can use the factoring facility from CIMB Niaga. Factoring is a facility for transferring and buying and selling receivables by parties who have the right to claim from the Bank. That way, your company’s receivables will be helped.

What is Factoring?

In Decree of the Minister of Finance Number 1251/KMK.013/1988 , factoring is a financing activity in the form of purchasing and/or transferring and managing short-term receivables or bills of a company from domestic or foreign trade transactions.

In other words, factoring is a process where a company sells its receivables to a third party which is usually referred to as a factoring company. Later, the company’s receivables will be purchased at the agreed price. 

However, keep in mind that factoring also has costs that must be borne by the company. Therefore, you need to consider the cost factor before deciding to use factoring services .

Difference between Factoring and Receivables Payment

The main difference between factoring and receivables payments lies in the direction of money flow. In factoring, a company or individual gets cash immediately from the factoring company. 

Meanwhile, in paying receivables, money comes to the company from customers or debtors. Apart from that, factoring also involves selling receivables to third parties, while receivables payments utilize the proceeds from the sale of products or services.

Benefits of Factoring

Factoring can provide significant benefits for a company, both from a financial and non-financial perspective. Some of them, namely:

  • Increase cash flow

Factoring allows companies to obtain cash quickly from their business receivables even though they are not yet due. This can help meet working capital needs, such as paying employee salaries, purchasing raw materials, or business expansion.

  • Reduce credit risk

Not many people know that factoring can also help companies reduce credit risk. By selling receivables to a factoring company, you reduce credit risk because the responsibility for collecting receivables falls on a third party.

  • Increase administrative efficiency

One of the benefits of factoring is that it can help increase the administrative efficiency of your company, because there is no need to manage the receivables collection process. Later, the factoring company will collect the receivables professionally.

  • Improve relationships with customers

Factoring can help companies to improve relationships with customers. Because, companies can offer credit payment options to customers. 

That way, companies can increase customer satisfaction and encourage potential customers to make repeat purchases.

  • Avoid debt

Factoring is not considered a company debt, because it is an asset sale. Therefore, companies do not need to think about paying interest or repaying debt.

Types of Factoring

There are several types of factoring that companies can choose according to their needs, namely:

  • Based on service

    Factoring based on the scope of its services is divided into four types, namely:

    • Full Service Factoring

      As the name suggests, full service factoring provides various financing and non-financing services. By providing comprehensive services, full service factoring can help your company to manage receivables more effectively.

    • Bulk Factoring

      This type of factoring only provides funding and maturity alerts to customers, but does not provide other services such as accounts receivable risk, sales administration, and collection.

    • Maturity Factoring

      Maturity factoring is generally used by companies that have overdue receivables that are difficult to collect. The factoring company will later take over the responsibility for collecting receivables from debtors.

    • Finance Factoring

      This type of factoring provides cash funds for receivables that are not yet due. However, your company must still be responsible for bookkeeping and collecting receivables, as well as bearing the risk if the receivables are not collected.

  • Based on agreement

    There are two types of factoring which are categorized based on the agreement, namely:

    • Disclosed Factoring

      Receivables under disclosed factoring can be transferred to a factoring company with the debtor’s approval. After the receivables are due, the company has the right to collect the receivables from the debtor. 

      To ensure this, the invoice must include a statement that the receivables arising from the invoice have been transferred to the factoring company.

    • Undisclosed Factoring

      In this type of factoring, your company can sell or transfer receivables to a factoring company without notification to the debtor.

      However, this does not apply if there is a violation of the agreement or the factoring company considers that the transaction will cause losses to it.

  • Based on risk coverage

    There are also types of factoring which are divided based on risk coverage, namely:

    • With Recourse Factoring

      In with recourse factoring , the factoring company will buy business receivables from clients and is responsible for payment of these receivables by the debtor. 

      If at any time the debtor cannot pay the receivables, then the responsibility for paying the receivables will be returned to the client.

    • Without Recourse Factoring

      Factoring companies will only provide loans to companies that sell receivables for the value of the accounts receivable. When the debtor does not pay the receivables, the company selling the receivables will bear the losses .

The choice of factoring type must be adjusted to the company’s needs and consider the type of receivables, the size of the receivables, the term of the receivables, and the company’s ability to monitor debtors.

Take advantage of CIMB Niaga’s Factoring Facility

Are you looking for a way to transfer receivables to a third party? If so, you can consider the factoring facility from CIMB Niaga. This facility supports commercial transactions between Principal and Downline.

The Factoring Facility is a facility for transferring and buying and selling receivables by parties who have the right to claim from the Bank. There are two product options available, namely Factoring Receivables With Recourse (APWR) and Factoring Receivables Without Recourse (APWOR).

Factoring With Recourse (APWR) is a facility for purchasing short-term receivables by taking the risk of payment by (potential) customers as suppliers if the buyer fails to pay the invoice, so that (potential) customers get payment for the receivables sooner than the invoice due date.

Different from APWR, Factoring Without Recourse (APWOR) provides a facility for purchasing short-term receivables by taking the payment risk of the (potential) customer as the buyer. The goal is for suppliers to receive payment faster than the invoice due date.

By using PTK Trade A/R, your company can obtain cash funds in Rupiah and other currencies approved by CIMB Niaga Bank to finance receivables from buyers. 

CIMB Niaga provides financing of up to 100% of the invoice value and working capital to help its customers’ company cash flow. Apply for PTK Trade A/R CIMB Niaga now to finance your business receivables. Find more complete information here .

Tinggalkan Balasan