What is the difference between open and silent factoring?

In an open Alliance one factoring, the sale of receivables is displayed to the customer. All existing customers are referred once to the factoring. In addition, each bill must bear the indication that “with debt-discharging effect is only to pay to the factor”.

In the past, many medium-sized companies have spared this hint, which is not necessary in silent proceedings. In recent years, this fear has been greatly reduced, since factoring has established in the meantime as a common form of financing and in most bookkeeping means only the change of a bank account. This development is comparable with the financing form of leasing. In the 80s and 90s it was quite disreputable to lease a nice car, today it can be quite disreputable to pay for your car with cash!

  • The silent factoring is legitimized by the newly created which sees the sale of receivables as legal, despite prohibition of assignment and lack of disclosure.
  • Nevertheless, factoring providers place higher demands on factoring customers for silent factoring. Most factoring banks expect sales in excess of 10M and a CR index better than 300.
  • A pleasant side effect of open factoring is that the condition is usually a bit cheaper.

The subjects of the business environment often face a shortage of working capital, especially relevant for beginners of small and medium-sized businesses. Solve the problem called process, called factoring.

Factoring can be called intermediary activity, the process of which occurs according to the following scheme:

  1. The factoring company pays 80 percent of the value of the goods of the manufacturer and obtains the right to collect debt obligations from the buyer;
  2. Payment for the rest of the financial resources (10-20 percent) occurs after the buyer transfers 100 percent of the debt to the account of the factor.

The money is transferred after deducting interest for the factor, in world practice this rate is about 0.5-3 percent higher than for bank loans, since the risks with such an operation are somewhat greater. At the same time, there are a number of factors that affect the level of the rate: the authority of the producer and the buyer, the nature of the factoring transaction, the term of provision, etc.Factoring is a very profitable business, but at the same time it carries fairly decent risks.

The difference between factoring and leasing

Despite the fact that factoring, leasing and credit are in the same economic plane, it would be incorrect to equate them, because these concepts have significant differences. Leasing and factoring are often viewed as very close alternatives, but in fact these are quite different tools.

Factoring, while it allows the manufacturer to use cash immediately after the shipment of goods, still involves the assignment of the right to collect debts, while leasing is the provision of means of labor for a certain percentage, and credit – the opportunity to use cash for certain compensation.