Finance sector has increased its problems related to competition power in 1980's with the globalization of the world. Thus, financial markets have started to develop new instruments and techniques against increasing financial problems of the firms. As you see, one of these instruments are "FACTORING" transactions.
FACTORING transactions, started under the body of banks in 1988 in our country, has turned into separate legal entities by separating from the bodies of the banks about the end of 1990's.
In short, Factoring is the transaction of "Buying Receivable Right" used in shorter time transactions, than 6 months preferably in the domestic and foreign trade. In other words, it is a transaction, performed between Factoring company (Factor) and commercial debtors (Buyers) and a commercial enterprise, selling the goods or presenting the service, (Seller). It is based on transferal of receivables, arisen or to be arisen from sale of goods and service based on the invoice, pursuit and collection of these receivables by the factor, undertaking not payment risk of the receivable subject to presented service type, keeping the records, concerning these receivables, presentation of financial services by making cash payment in definite rate against receivables, which are taken over.
It is a financial product, in which a service packet, for which at least two of the services
a) Financing b) Guaranty c) Collection
are used together against transferal, is presented to its customer by FACTOR (Factoring Company) with performed FACTORING transaction.
In other words, it provides FINANCING by paying a definite rate of the receivables, arisen from sales of goods and service with short term and based on the invoice and it provides facility of cash flow; in case buyer firm, for which limit is assigned, is insolvent, it GUARANTIES the receivable provided that limit conditions are fulfilled and Factoring company makes COLLECTION of the receivables, taken over and it provides time and source economy for the customer.
Transfer of Receivables and Payment :
- Customer transfers its receivables to Factor (invoices, arisen/to be arisen from time sales)
- Guarantees of transferred receivables (promissory note, check, etc.) are transferred from the customer.
- It is inspected whether receivables are composed of real commercial trading or not.
- Factor buys the receivables under issued factoring agreement.
- Factor makes the payment, after expenses of commission and interest rate, agreed by the customer against receivables to the customer.
Collection :
- Factoring company undertakes the collection of your receivables, composed as a result of your time sales.
- Records and pursuit of your receivables are performed by the factoring company.
- Invoice is issued for the expenses such as accrued factoring interest charge, commission, etc. This invoice is accounted as financing expense.
