Hundreds of thousands of business in the world use the services of factoring companies in concluding
commercial transactions. Factoring allows to raise additional funds for business financing, ensures
stable cash flows and facilitates their planning, reduces management and administration costs; it may
eliminate risks related to bad trade debts, therefore, companies may earmark more resources for their
is a financing arrangement in which a monetary liability (an account receivable) is transferred to a
factoring company and which includes financing, invoice administration, accounting for trade debtors,
and reduction of risks related to doubtful debts.
Factoring is an efficient and effective method of financing of working capital which enables the company
to receive 80% to 90% of the invoice amount without pledging/mortgaging assets. Upon submission of the
required documents, an advance payment is made to the seller; the seller receives the remaining amount
after the buyer makes a payment against the invoice. Factoring is a very flexible method of financing as
it is directly related to the sales volume: the larger the sales, the more funds are received.
A company that is focussed on sales sometimes does not check solvency and financial standing of its
buyers, therefore, the seller may face unforeseen difficulties if buyer’ solvency problems arise. In
case of factoring without the right of recourse, a factoring company may assess risks related to various
companies and groups of companies as it maintains a detailed database and client networks. Factoring
guarantees stable and reliable cash flows for your company even when your buyer has solvency issues or
goes bankrupt; however, disputes with buyer are excluded.
Swedbank lizingas, UAB provides consulting to its client regarding the client‘s buyers and assists the
client in collecting buyer debts.
Administration of invoices enables the seller to save time and workforce required for securing revenues
and monitoring and planning of cash flows. Administration of invoices includes:
- Review of invoices and verification that they comply with the sale and purchase agreement and the
- Calculation of the buyer’s risk limit;
- Collection and monitoring of buyers’ payments (sending of notices, reminders, invoices for
- Monitoring of financial standing of buyers;
- Monthly reporting to the seller (totals and a breakdown by invoices).
It is quite usual that buyers are slow in paying. Reminding calls or warnings may damage relations
between the seller and the buyer. Where the reminder comes from a third party, i. e. a financial
company, the buyer‘s payment discipline may be improved and the seller-buyer relations are not affected.
Information about potential risks
If the buyer fails to pay under the transferred claim, the seller is obliged to discharge such liability
in full (in case of factoring with the right of recourse) or in part. Please read the terms and
conditions of a factoring agreement carefully: the seller‘s liability to pay to the factoring company
arises also in other cases stipulated in the agreement (e. g. breach of the duty to inform; disputes
with the buyer over goods supplied or services provided). Improper fulfilment of financial obligations
increase your financing costs and can have a negative impact on your credit history; if the agreement is
terminated due to a material breach on your part, forced recovery of the debt may be initiated.