In the financial world there are two concepts related to the management of payments and collections in the financial field, but they have significant differences in terms of their operation and the parties involved.
Factoring is a service offered by a specialized company, known as a factor, to purchase another company’s accounts receivable in exchange for a discount. This means that the company sells its unpaid invoices to the factor, who is responsible for collecting them directly from customers. It allows you to obtain immediate liquidity, since you do not need to wait for your clients to pay the invoices.
On the other hand, confirming is a financial service offered by a financial institution. In this case, the financial institution is responsible for advancing payments to a company’s suppliers. It is a tool that allows you to improve relationships with suppliers.
¿What are the differences between factoring and confirming?
| FACTORING | CONFIRMING | |
| Cash flow | The company sells its accounts receivable to the factor and receives advance payment for them. | The financial institution advances payments to suppliers on behalf of the company. |
| Participants involved | The participants are the company that sells its accounts receivable (assignor) and the factor that acquires them. | The participants are the company, the suppliers and the financial institution. |
| Main purpose | The main objective is to provide liquidity to the company by allowing it to convert its accounts receivable into cash early. | Its main objective is to optimize the management of payments to suppliers and strengthen business relationships by offering advance payment to suppliers on behalf of the company. |
Collection responsibility | The factor assumes responsibility for collecting the company’s accounts receivable directly from customers. | The company is still responsible for making payments to suppliers, but the financial institution advances those payments on its behalf. |
In short, factoring focuses on managing the company’s accounts receivable, while confirming focuses on expediting payments to suppliers. Both services aim to improve a company’s liquidity and financial management, but differ in the participants involved and the direction of cash flow.
