Factoring - A Description

Factoring is a standing contract between a specialized factoring entity - Fiorito Factoring y Negocios Financieros - and a business, whereby the former undertakes to purchase at a fixed discount commercial accounts receivable that the latter has obtained during the normal course of its business.

There are various services that a company can obtain by making use of factoring:

	Financing.
	Collection of accounts receivable.
	Administration of invoices ceded by customers.
	Administration of collections on provincial locations.
	Framework agreements for suppliers.

In a world in which sales prices of goods and services are highly competitive, the cost of their components plays a very important role.
Before entering into an arrangement with a factoring firm, clients should first analyze the cost to the company of their existing structure, the added value that it provides and the changes that will be necessary to adapt to market requirements. Once this starting-point has been determined, it will be possible to compare advantages and costs arising from an agreement with a factoring agent.

A common mistake, especially in times of crisis, is to consider that the services provided by a factor are of secondary importance compared to production, sales and risk management, representing only an increase in costs. As will be seen in detail elsewhere in this article, effective action by a factor can have an impact on these critical areas, reducing both the opportunity cost or the cost of financing in other cases.

There is a growing worldwide trend among large companies to outsource or contract services such as transport, IT systems, temporary personnel, maintenance, etc. seeking not only improved profitability but also to allow specialization by the organization itself.

In Argentina, factors are increasingly required to provide collection and financing management.