Accounts receivable factoring refers to the transfer of unexpired accounts receivable formed by credit sales to commercial banks under certain conditions in order to obtain liquidity support from banks and speed up capital turnover. Theoretically, factoring can be divided into buyout factoring (non-repurchase factoring) and non-buyout factoring (repurchase factoring), recourse factoring and non-recourse factoring, explicit factoring and implicit factoring, discount factoring and maturity factoring.

major function

(A) low-cost financing to speed up capital turnover

The cost of factoring business is obviously lower than the interest cost of short-term loans of banks, and banks only charge corresponding formalities. Moreover, if enterprises use it properly, they can recycle the credit line of factoring business from banks to enterprises, and give full play to the financing function of factoring business. Especially for those enterprises with strong customers, good reputation and long payment cycle, the effect is particularly obvious.

For example, for domestic telecom equipment manufacturers, due to the strong market position of telecom operators and fierce competition in the telecom industry, the average collection period of their sales contracts is generally 12- 14 months, (the account period is generally 1-4- 1, that is10. In this way, there will be a liquidity gap of at least 9- 1 1 month, which will cause great financial pressure on telecom equipment manufacturers. However, if telecom equipment manufacturers make rational use of accounts receivable factoring and recover the remaining 80%-90% of the payment in advance, it will greatly improve the liquidity turnover of enterprises, reduce the short-term financial pressure and accelerate the development of enterprises.

(B) to enhance sales capacity

Because the seller has the ability of factoring business, it will make great concessions to the buyer's payment period, which greatly increases the possibility of successful signing of sales contracts and broadens the sales channels of enterprises.

(C) improve the financial statements

Under the buyout factoring mode without recourse, enterprises can greatly reduce the balance level of accounts receivable in a short time, speed up the turnover of accounts receivable and improve the asset management ratio index of financial statements.

Financing function

Accounts receivable factoring is essentially a financing method to obtain short-term loans from banks with the current assets of unexpired accounts receivable as collateral.