The use of collection services and financing opportunities in return for the transfer of the receivables arising from the sale of all kinds of goods and services to the financial institution called "factor" through assignment is called factoring.
Legally, factoring can be considered as an assignment of receivables.
Three services offered only by factoring
Factoring is the provision of three different services to businesses. These;
» services (such as keeping accounts receivable, tracking receivables and making collections),
» assuming the risk of non-collection and
Although there are various differences between the practices abroad and the practices in our country, these three different services are provided only by factoring institutions in our country. There are different organizations that keep sales and receivables of a company abroad, deal with collections, and collect information about the market. However, in Turkey, there is no other financial institution other than factoring institutions that can provide these three services together.
Likewise, taking the risk is a service that can only be provided by factoring in our country.
Factoring is not banking
In the field of providing funds to businesses, banks are the biggest resource in the world and in our country. However, it should be noted that factoring institutions approach companies from a different perspective than banks.
When a bank evaluates credit lines, it takes into account the financial situation of the firms and their plans for the future. Whereas, a factoring institution, while determining its limits, looks at the sales volume of its customers, past and future performance, as well as the quality and solvency of its debtors.
In short, factoring works with a broader and more constructive approach.
Factoring Advantages
One of the greatest benefits of factoring service is that the risk of non-collection of receivables belongs to the factor in the type of factoring called irrevocable factoring. Apart from such a hedge against risk, factoring provides three basic possibilities:
1- Thanks to the funds provided by the factoring service, businesses;
- They can easily finance increases in their sales.
- With a steady cash flow, they can take advantage of discounts and cost less by purchasing raw materials in cash.
- They can increase their credit worthiness by making regular payments to Credit Institutions.
- They can easily meet the financing requirement brought about by their seasonally increasing sales.
- They can prepare their cash flow plans more realistically and easily.
- As a result of the collection of receivables and payment of debts, they make their balance sheets more liquid, thus increasing their creditworthiness.
- Due to their cash work, they do not pay interest on their purchases.
2- Businesses by keeping their records by the factor;
- They get rid of the cost of Sales/Customer current account accounting and credit control service.
- They can devote more time to business development studies instead of debt collection and checks.
3- Businesses as a result of credit intelligence;
- They have the opportunity to avoid high-risk companies.
- They get rid of the cost of determining the credit worthiness of their customers.
