The receivables facility is related to factoring, with factoring accompanying a few additional functions.
Reduce the loan
As part of a receivables cession, a debtor assigns outstanding claims to his creditor before they become due. Thus, the demands eicredit. The equivalent value of the claims is credited to the debtor less fees and interest. This simple handling occurs in different variations, namely as “open” and “quiet” cession. The difference is that in the case of a silent assignment the debtor of the borrower is not informed of the assignment. The receivables are thus paid to the borrower, not to the bank, regardless of the existing receivables facility loan. However, the borrower undertakes to immediately forward incoming payments to the bank. If the cession is open, the borrower’s borrowers are informed by the bank that they must make their payments directly to the lending institution. If a debtor defaults on payment, the borrower must cede another claim in the case of cession loans, whether open or silent, or he must reduce the loan by the missing amount.
Receivables facility loan
As mentioned above, the receivables facility loan is related to factoring. However, factoring goes a few steps further, as the factoring company provides additional services for the customer in addition to the loan. These include the management of accounts receivable, the execution of reminder and debt collection, as well as the assumption of risk Dubiosen. The latter is borne by the debtor’s borrowers always making their payments to the factoring company.
From an economic point of view, factoring overtakes the traditional receivables lending process with great strides. The reason is that factoring with more extensive benefits and the possibility of specialization offers great advantages over the receivables credit. Thus, the factor specializes in the management of receivables and is well versed in the risk of doubt, reminder and debt collection. Since the factor performs its tasks on a grand scale, it can do this more effectively and more favorably than it would be possible for its customers to operate on its own.