Factoring can be used for domestic business and exports as well. Domestic factoring involves the clients selling goods and services to the customer. Additionally, the clients deliver the invoices, and orders to the factor and also inform the customer of the same. This is followed by the factor making a cash advance and forwarding the invoice statement to the client. The factor sends copies of account statements, receipts, and remittances to the customer, who sends the payment to the factor. The concept of different factoring in Saskatchewan is practiced based on the needs of the business.
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Full factoring
Also referred to as “without recourse factoring”, it is one of the most widely used factors in businesses. It offers a broad scope of facilities including a myriad of services. Full factoring includes the administration of an individual’s debts. This indicates that a factoring entity or bank will contact the debtor first to notify them that the debt has been factored in. Furthermore, a setup will be initiated to process the necessary accounting and payment procedures. Starting from debt protection, finance sales ledger, collection of debt, customer information, etc., are offered by full factoring.
The maturity factoring
Also recognized as “collection factoring”, is a financial process in which a customer persuades his/her invoice to a factoring company. The factor, in return, renumerates the customer for invoices on the due date of any day after the completion of the maturity period. There is an agreement concluded in the financial services where the factor doesn’t pay the client any cash in advance. Under maturity factoring, every fundamental feature of factoring are included except the finance part.
Recourse factoring
The recourse factoring in Saskatchewan doesn’t take the risk of poor debts. They reclaim the capital from the company even if the customer doesn’t make a payment. There is a factoring agreement that outlines the number of days after the payment due the company must refund the advance amount. Like full factoring, it also offers all types of facilities excluding the protection from debt. The factoring service allows a company to sell its invoices to a factoring company.
Advance factoring
This is one such financial service that can be with or without any recourse. Under the agreement of advance factoring, the factor will offer the client an advance payment at a specifically agreed interest rate on non-due as well as uncollected receivables. This is not considered an advance payment but rather is considered a pre-payment service. Under the service, the customer doesn’t get notified about the advanced factoring arrangement between the client and the factor. Thus, in simple words, the buyer is not aware of the factoring arrangement. It is the client who organizes the debt collection and pays for every invoice to the factor, in case the advance payment has been received.
Conclusion
The different types of factoring in Saskatchewan help businesses enjoy robust security and protection against poor debt. Furthermore, it also helps to adjust the financing needs to the business sales. The multiple benefits of factoring help to gain greater equity and higher liquidity.