Over their life cycle, and especially in times of crisis, companies encounter a range of situations: payment delays, extension of payment terms, the invocation of certain contractual clauses (i.e., force majeure), genuine or fabricated commercial disputes, or partners’ insolvency — all of which end up affecting their operations.

In the drive to grow, some companies focus on sales while letting legal and credit risk mitigation fall into the background. They sign commercial contracts without paying due attention to the documents and clauses, and when push comes to shove they are exposed by breaches of those terms. Another common issue is insufficient scrutiny of partners and their payment behavior, with no credit risk management system in place.

Why factoring can be a solution?

Not only can factoring products reduce these risks; they also provide a source of liquidity. They can bundle 4 services in 1, as follows: 

-          advance, before the due date, of a percentage of the receivables’ value

-          receivables management

-          amicable collection of receivables

-          coverage of the debtor’s non-payment risk.

And even though factoring is widely used worldwide, entrepreneurs in Romania tend to be cautious about choosing this product. That’s largely because of certain myths, which we set out to debunk.

Myth no. 1 If I use factoring, my partners will think I have financial problems.

Factoring services can be useful to any company that wants to grow sales in a controlled way and/or offer commercial advantages to partners (i.e., payment terms), backed by non-payment risk coverage.

On top of that, they can convert their receivables into cash ahead of maturity, which helps with paying suppliers, taxes and other expenses. They also benefit from receivables management and professional, amicable collection services, to get paid as close as possible to the due date.

In short, by using a factoring solution, both trading partners can gain advantages that help develop their partnership.

Keep following the BT blog – we have a few more factoring myths to debunk.