For a company to operate properly, it is necessary to provide it with adequate financial resources. This is always connected with costs, so it is natural for the economic market to develop more and more services offering financial support for companies. One of the fastest growing services of this type is factoring.

Its distinguishing feature is that, unlike the classic means of financing company activities, it is so-called internal financing. What does that actually mean? Factoring is based on the purchase of elements of the company's assets, primarily its receivables.

Who is factoring for?

Factoring is most often used by entrepreneurs who issue deferred payment invoices for their products and services. A factoring company or a bank buys out late payment invoices from an entrepreneur, usually invoices that have to be paid within 2-3 weeks. Not only does the entrepreneur thus obtain funds for his business immediately, but he is also relieved of the risks associated with enforcement. This obligation falls on the factoring entity. In this way, factoring becomes a tool to improve an entity's liquidity and an element of eliminating the risk of contractors' insolvency.

Financial service for companies

It is important to know that factoring is not officially recognized by Polish law and belongs to so-called unnamed contracts. The general provisions of the Civil Code (art. 509) are applicable in its case, stating that the creditor may sell his receivables to a third party provided that it is not in conflict with the contract with the debtor, does not violate the law and is not contrary to the nature of the receivables. All rights due to the creditor pass from the moment of sale of the claim to its purchaser, including in particular the right to claim default interest.

Types of factoring relationships

Factoring can occur under several different forms, each with its own advantages and disadvantages. It is worth mentioning and briefly describing them here:

I. Full factoring - this is the basic, primary and most convenient form of factoring for a factor, i.e. an entity selling receivables. It consists in the transfer of all rights and obligations of the creditor to the new entity, including in particular the need to claim the payment of the cash equivalent due from the insolvent debtor. All the risk is transferred to the factoring entity, but it must be borne in mind that this is a relatively expensive service.

II. Incomplete factoring - currently the most common type of factoring, where only an advance payment is made for a receivable, after which the entire amount goes to the factoring agent at the moment when the creditor settles his previous debt. In this way, the factoring company does not assume the risk of the counterparty's insolvency and if it does not receive its money on time, it will refund the amount due and claim back the advance payment made. This type of factoring is also referred to as recourse.


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