Q: In practice, what are the great advantages of Factoring?
A: There are several advantages in different aspects and which cover various companies’ needs. A company may be interested in resorting to Factoring by one or several objectives:
- Outsourcing of the collections department or reduction of its administrative and bureaucratic work load (converts fixed costs into variable, improves administrative management, improves security in financial management);
- Decreases conflicts between the company and its clients since it is the Factor, a specialist in these potentially sensitive matters, who takes care of collections;
- Increased transaction security (particularly in exports) due to the fact that it is a Factoring institution who handles collections, which has a larger institutional weight and knowledge of the local business market;
- Diversification of the financing sources available to a company and taking advantage of an asset which is not usually used towards that end: the receivables deriving from its sales.
Q: Can any entity resort to Factoring, regardless of its size and sales’ volume?
A: Any company or Self-Employed Businessman can resort to Factoring regardless of their size and sales volume. Usually, the Client assigns an annual volume of receivables in the order of 1 million euros but each factoring institution has its own thresholds so one should always enquire directly with them.
In the past, only operations with a certain higher volume would be susceptible of benefiting from Factoring but with the growing evolution and efficiency of the sector, the computerization of processes and the growing demand, the size in volumes which may resort to Factoring have been decreasing.
Q: Factors acquire invoices from clients but they can also manage the payments to suppliers?
A: There is a factoring modality named Confirming or Reverse Factoring or SPF (Supplier Payment Service) where the Factor manages the payments which the Client (the company) makes to its Suppliers. The company indicates to the Factor which suppliers it wants to be the object of Confirming and the Factor will pay them in the designated dates.
In this way, a company can release capital for other areas and assure a secure and timely payment flux to its suppliers, which may result in commercial discounts from them since there is a timely payment assurance.
Q: How can Factoring manage collections almost all around the world?
A: Be it in Malasya, Morocco or Chile, Factoring is able to make collections in a large part of the World. To facilitate these transactions, there are 2 ways of functioning:
- the Portuguese Factor has a bilateral relation with a Factor in the country where the exports were destined to;
- the Portuguese Factor resorts to an international cross-border platform which aggregates more than 400 Factors located in more than 90 countries.
In this ways, it is the Factoring institution in the country where the Portuguese companies’ client is located and which acquired goods or services, which takes care of the effective collection. Naturally, the Factor in that country has a high knowledge level of the local reality as well as the way that market operates, just like Portuguese Factors have in Portugal, which highly facilitates the management of payments.
Q: What happens if the Debtor does not pay the assigned invoice?
A: If one resorted to Recourse Factoring, the assigned invoice may be returned to the Client after a number of pre-defined criteria are exhausted in the collections process.
If one resorted to Non Recourse Factoring and the Debtor does not pay the Factor, it is the latter who will have to assure its effective collection and may not invoke that fact against the Client which assigned the invoice (unless in very specific cases, like the non-conformity of the supplied goods).
Q: Can financial leasing finance every type of assets?
A: Financial leasing is able to finance every type of assets, be them real estate or fixed assets (equipment), from printers, vehicles and industrial machines to hospitals, shopping malls, offices, warehouses, etc.
Q: Is financial leasing undertaken only by Banks?
A: Financial leasing is an activity regulated and supervised by the Portuguese Central Bank and may be undertaken by all authorized entities such as Banks, “Caixas”, Credit Financial Institutions, Credit Financial Companies and Financial Leasing Companies. It can still be a financing option offered at the point of sale, in collaboration with the mentioned financial sector entities.
You can check in ALF’s website its Financial Leasing members as well as their web addresses.
Q: Who owns the asset in financial leasing?
A: The legal owner of the asset during the contract is the lessor, which allows it to have higher security in the operation and, consequently, offer a more competitive interest rate.
The lessee (client) is the economic owner of the asset and can use it however he wishes during the contract (very few and specific exceptions).
The fact that the lessee is the economic owner of the asset is furthermore evidenced when the lessee is a company, where it will be able to register it in its balance sheet and undertake the respective depreciations.
Q: Is Financial Leasing a Credit/Loan?
A: Financial Leasing is not a synonym of a loan/credit, since the financial entity does not deliver capital but rather the usage of an asset. It is a specific figure which, involving a financing component, has its own configuration and must not be confused with others.