Factoring as a product has many benefits. These include e.g. debt collection on the part of the factor, counterparty monitoring, or flexibility in the use of the factoring limit. If the limit is not utilized, the client does not pay a so-called commitment fee. The fee will only appear when the client uses the factoring limit and submits the invoice for the purchase. This is where another benefit comes in, namely the ability to receive a discount for early payment from a supplier. Thus, the cost of the factoring agreement can be reduced to a minimum.
However, one of the greatest benefits that a factoring agreement can bring is the transfer of risk to a third party - the insurer. In this type of factoring, the insurance company plays an important role. There are two options: the insurance is on the side of the factor, which, based on cooperation with the insurer, ensures the assumption of risk; or the client's own policy. This type of factoring allows the entrepreneur, in particular, to sleep better. It provides security in the event of the bankruptcy of one of its contractors. Additionally, all possible court disputes take place on the side of the insurance company. It also happens that the insurer rejects the counterparty at the "outset", before joining the contract. Then, of course, there are voices of dissatisfaction from companies that want to use this type of contract – but is it right? Knowing about the financial situation of the contracting party early enough, the company can prevent a possible loss of money, e.g. by not selling the goods with deferred payment date, but only for cash.
So this bad news is actually the good news.
Factoring Product Manager at Comarch