Factoring is the answer

Choosing the best financial strategy is critical to the life and development of a company. Whether it is growing or consolidating, it is important to use the liquidity potential found in its assets, especially in its accounts receivable. But how does it make the most of this liquidity potential?

What is factoring and why choose it?

The increase of commercial relations in the world and the incorporation of international markets in our country, open the need for a new vision in business and its economic environment. In this context, factoring has emerged as one of the most predominant financial alternatives, a term that has gradually become known in the midst of business practices.

Factoring has evolved gradually and although there is no exact date for its emergence, it is a process that began in the practices of English colonial trade, with the textile industry, between the end of the 15th century and the 19th century. Subsequently, it has been fully developed in the North American market, providing an effective response to socio-economic requirements and fulfilling a triple function: management, security and financing.

As a financial mechanism, factoring has expanded to different sectors of the economy and is used in several countries. Latin America has seen its potential, becoming an instrument of great importance for economic and financial development of each country. Colombia is no exception.

With the entry into force of Law 1231 of July 17, 2008, the factoring activity is regulated. It is a contract by means of which a financial intermediary is responsible, at its own risk, for the mobilization and/or financing of the portfolio of a person, whether natural or legal, in order to subsequently collect from debtors by obtaining a discount on the value of the portfolio.

This is a modern financing alternative to obtain working capital, through which companies can transform their business accounts receivable into cash.

Factoring is one of the most widely used financial tools to provide liquidity to companies that sell on credit. It is an instrument that allows greater flexibility, converting their short-term sales invoices to cash sales, without the need for long and complex collection procedures. They also open up the possibility of new credits, which, in the face of traditional financial entities, they would not be viable due to the weakness of their financial statements.

Find out more about the exact process of International Factoring! Contact us.