In bank credits against promissory notes, the promissory notes stand as a security for the credit facility and are transferred to the bank with an endorsement for security purposes and are continued to be traced in the "billed receivables" account in the assets side of the balance sheet, while the credit borrowed against promissory notes is recognized in "financial debts" account in the liabilities side. Whereas, in factoring, a promissory note, associated with invoice, represents directly the amount of receivables, and is transferred to the factoring company with an endorsement for assignment, and the amount of the transferred promissory note is deducted from the "billed receivables" item in the balance sheet, is turned into cash, and is not shown in "financial debts".

Q- How can I enter into factoring my receivables from open account customers?

Receivables from customers operating on an open account are transferred to the factoring company in advance under a factoring contract which is by nature an agreement of assignment. At the time of issuing the invoice at a later date, a note addressed to the debtor is inserted in the invoice, stating that receivables of the invoice have already been assigned to the factor, and that are therefore required to be paid to the factor.

Q- What kinds of costs are involved in factoring transactions?

There are two types of costs involved in factoring transactions according to the nature of transaction. The first is the commission and charges to be paid against the intermediary role undertaken for the collection of receivables and/or against the guarantee of collection. The other is the interest payable against pre-financing facilities, if any.

Q- May I benefit from factoring even if I do not have finance needs?

Of course, you can! Financing is only one of the three functions of factoring, the others being service and guarantee functions. It is also possible to benefit from collection and/or guarantee functions without the use of financing function.

Q- How and at what ratio is pre-finance payment effected in factoring transactions?

Pre-finance payment in factoring transactions is effected over the amount of receivables assigned to the factor, typically at a rate that will not exceed eighty percent of the receivables.

Q- What is the meaning of revocable and irrevocable factoring?

In irrevocable factoring transactions, the risk of non-payment of the receivables is underwritten by the factor, and with the exception of shipment of defective goods, the customer is held entirely free of recourse. Whereas, in revocable factoring, the risk of nonpayment of the receivables is not underwritten by the factor, and in the case of non-payment of the pre-finance payments made for the receivables, the factor has the right of recourse to the customer.

Q- Which legal actions are taken upon non-payment of factoring receivables by the debtor?

This is dependent on the terms and conditions of the agreement between customer and factor. The required legal actions may be initiated by the customer, or by the factor in the cost of the customer.

Q- Do I have to assign all of my forward receivables in order to benefit from factoring transactions?

No. Although generally speaking, total and advance assignment of all receivables is the appropriate method, it is not a must.

Q- Must an invoice have been absolutely issued in order to benefit from factoring transactions?

According to the legislation, the receivables subject to factoring must be relied upon an invoice or a similar document. This means that the transaction is mainly based on invoice. However, factoring may also extend to receivables for which an invoice cannot be issued for technical or legal reasons, and which are evidenced by a similar document.