A factoring contract is a means of financing for small and medium-sized companies. The concept of factoring contract means that a company (customer) hires another (financial, factor) so that the latter can provide you with solvency and financial resources with which to deal with your credits, accounts receivable and also your defaults.
Thus, one of the advantages of the factoring contract is that small and medium-sized companies have the opportunity to have greater liquidity in those moments that need it and also saves time in the collection of debts.
Characteristics of the factoring contract
The characteristics of the factoring contract may vary according to the contract modalities or the cost of the operations, but in general all of them share:
- The need to be regulated by a Commercial Code
- The factor companies will be those that acquire the credits while the companies that acquire them will be the client companies
- The factor company will be in charge of establishing the clauses of the contract and the client company will have the possibility to accept or reject them. However, all contracts will be agreed upon by both parties.
- Obligatory there must be obligations for both parties but benefits and profit capacity will be for both
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