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The factoring transaction includes three basic lines of receivables collection services, receivables management services (that include screening and monitoring of receivables) and receivables finance services (payment of a portion of receivables before maturity).
Factoring can transform your deferred receivables, which are less liquid compared to your other asset classes of securities or banks into a cash funding source in an efficient way. Thus, factoring provides an internal way of financing working capital through own receivables without the need for other more expensive external financing sources.
In summary, the factoring transaction can be defined as the payment of major portion of the receivables assigned to the factoring company much before maturity.
At maturity, receivables are collected by the factoring company and factoring company pays the remaining balance to the client deducting fees and expenses.
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