If your company is considering using Factoring as a management tool in its financial strategy or if it is already implementing this process, it is important to recognize the impact it has on the company’s accounting.
Factoring is a financial tool that provides multiple advantages in the financial and accounting management of companies, regardless of their size or sector (Learn more in this reading).
¿What is the accounting impact of factoring?
Although the accounting impact varies depending on the factors surrounding the company, such as the country, the sector, the current situation, among others, we can highlight the most common:
- Liquidity Improvement
Factoring provides immediate liquidity by converting accounts receivable into cash, which allows generating benefits such as timely payment of obligations, avoiding later conflicts due to late payments.
- Payment to suppliers
Obtaining immediate liquidity facilitates the corresponding payment to the company’s suppliers, contributing to adequate performance and execution of the operation, without interruptions.
- Credit Risk Reduction
By transferring credit risk to the factor, the company can reduce the need to make provisions for credit losses.
- Balance Optimization
Financial solidity, such as the rotation of accounts receivable, can be achieved thanks to the optimization of the balance sheet and, therefore, the financial ratios.
- Reduction of Administrative Costs
Due to the outsourcing of the accounts receivable process, the company can obtain savings in administrative costs, contributing to greater profitability and efficiency.
- Greater focus on Core Business
One of the most important benefits that Factoring can offer in accounting, although at first glance it may not seem related, is the option to focus your operations, liquidity and efforts on your main and strategic operations. By outsourcing processes, you obtain immediate liquidity, time and administrative resources that will focus on strengthening the Core Business, increasing profitability and efficiency in the company’s operational and strategic processes.
It is important to highlight the value of the prior analysis of the company’s needs in order to choose the type of financial service appropriate to these needs. If Factoring is the best option, the type of Factoring that best suits the company’s situation must be taken into account. Therefore, companies must carefully evaluate the costs and benefits, as well as understand the terms and conditions of the agreement.
