Talking about financial factoring is addressing one of the most effective tools for exporting SMEs seeking to obtain financial liquidity and optimize their cash flow.
Although there is multiple economic supports for exports in Mexico, financial factoring has become an instrument that helps avoid non-compliance with the payment of invoices and contributes to the economic sustainability of a company, in addition to allowing greater flexibility to carry out investments and optimize available resources.
Currently, there is a wide variety of factoring companies they provide this service to SMEs, so knowing what financial factoring is and learning how to request it will help you give your business an economic break.
What is financial factoring?
According to the Mexican Association of Financial Factoring and Similar Activities (AMEFAC), factoring is defined as follows:
“Financial factoring is an alternative that allows accounts receivable to be disposed of in advance. Through the factoring contract, the financial factoring company agrees with the client to acquire credit rights that the client has in their favor for a certain price, in national or foreign currency, regardless of the date and the way in which it is paid”.
According to the previous statement, financial factoring is a tool that allows exporting SMEs to sell their invoices receivable to a financial institution that, in this case, corresponds to a factoring company.
This factoring company has the objective of advancing the value of outstanding invoices to SMEs immediately. In this way, exporting companies can obtain financial capital more quickly without the need to go to a bank, which requires longer waiting periods.
Due to the above, financial factoring has positioned itself as one of the best short-term financing mechanisms that supports the economic growth of companies, obtaining advance payment of accounts receivable and converting credit sales into cash sales. representing greater cash flow and providing greater financial possibilities to companies.
How does financial factoring work?
In the first instance, the exporting company issues its client or importer the invoice for the sale made.
Subsequently, the exporter contacts the factoring company to request the service. Once the factoring entity proposes a commission rate for the total amount of the invoice that the financial company will charge for the service and the exporter accepts it, the factoring company will proceed to purchase the invoice, granting an advance of up to 90% of the total amount thereof.
Finally, the exporter will be able to offer flexible payment payments to its client. Once the payment deadline is met, the importer will make full payment to the financial factoring company.
What types of financial factoring exist?
Now, within financial factoring, two types of this service are contemplated that vary according to the conditions and coverage of the contracts.
Let's look at the most common types of financial factoring in exports:
Financial factoring with recourse
Recourse financial factoring is used when the SME requesting the service is obliged to cancel the debt in the event of a specific non-payment.
In turn, the factoring company is solely responsible for managing the collection from the debtor and for timely advancing the payment advance.
However, keep in mind that in financial factoring with recourse the factoring company is protected in the event of non-payment, since the exporting company is the one who must assume responsibility for it
Financial factoring without recourse
For its part, in non-recourse financial factoring, the requesting company is not obliged to respond for the payment in the event that the debtor entity does not carry out said transaction on time.
In short, the factoring company absorbs the risk and responsibility of collections, thanks to the guarantee of commercial credit insurance involved.
Non-recourse financial factoring is used by a wide variety of companies globally, because after selling their accounts receivable, they are ceding the risk of non-payment to the factoring company.
Therefore, non-recourse factoring allows exporters to sell much higher volumes of merchandise and to a greater number of customers without sacrificing their capital.
