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Domestic Factoring

What is DOMESTIC FACTORING?

Domestic factoring means purchase, funding, management and collection of short term accounts receivable arising from supply of goods and services to domestic buyers. Goods are delivered on open account credit terms up to 180 days. Factoring KB offers domestic recourse factoring; it means that in case the account receivable is not paid in 90 days after the due date at the latest, it is reassigned to the client.

Non-recourse factoring with insurance is another alternative. The advantage of this option assums that Factoring KB arranges all negotiations with insurance company including applications for insurance limits and reports of insurance events. Insurance refers exclusively to cases of domestic buyer financial insolvency. In case of insurance event, the client will receive 85% of the account receivable value; 15% represents client’s participation on the risk.

DOMESTIC FACTORING Principle

  1. Factoring KB concludes a domestic factoring agreement with the supplier.
  2. Supplier provides goods to the buyer including an invoice which contains assignment clause informing the buyer that the account receivable is assigned to Factoring KB.
  3. Supplier assigns account receivable to Factoring KB (supplier has the option of electronic account receivable assignment).
  4. Factoring KB pays so-called advance to the supplier in an amount of 70–90% of the account receivable value.
  5. Buyer pays account receivable in full to Factoring KB account.
  6. Based on the payment receipt, account receivable is settled with the supplier.

Domestic factoring principle

DOMESTIC FACTORING WITH INSURANCE Principle

For this type of an agreement conclusion, determining insurance limit for selected buyers is essential.

  1. Factoring KB concludes a factoring agreement for domestic factoring with insurance with the supplier. It usually amounts to 0.3–1.0% of the account receivable value.
  2. Supplier provides goods to his buyer as a Factoring KB client.
  3. Supplier assigns account receivable (invoice with assignment clause) with the necessary documentation to the factor.
  4. Factor provides the client with account receivable advance based on contracted amount and reports the account receivable to the insurance company.
  5. Buyer pays the invoice amount to the factor’s account.
  6. Factor pays the remaining amount of the invoice reduced by agreed fees and interests to the supplier.

In case the account receivable is not paid in 90 days after the due date, the Factor reports an insurance event to the insurance company.

Domestic factoring principle with insurance

Who can apply for DOMESTIC FACTORING?

  • trading or manufacturing companies or enterpreneurs, companies that provide services
  • with regular deliveries
  • goods or services are delivered to several regular buyers within open account credit terms
  • accounts receivable are before their due date
  • there is no third-party right to the accounts receivable
  • there is a contractual relation between the supplier and the buyer
  • annual supply volume to the buyers through factoring is usually over 10 million CZK

DOMESTIC FACTORING Advantages

  • increase of competitive advantage by providing goods through open account credit terms with maturity of up to 90 days (180 days in exceptional cases)
  • possibility to draw funds immediately through overdraft option in the account receivable currency, usually 70–90% of the nominal value
  • advance provided usually up to 24 hours from receiving account receivable document
  • in case the client has an account with KB, funds transfer is possible on the same day of account receivable assignment
  • goods sales volume extension through funding without the usual securing required by the banks
  • planning specification and cash flow stabilization
  • electronic communication allowing account receivable assignment and providing daily overview of accounts receivable, advances and collection
  • account receivable management takeover by the factor-operating cost decrease
  • interests based on actual provided funds

Costs Associated with DOMESTIC FACTORING

  1. Factoring fee: Includes cost connected with administration, collection or insurance of accounts receivable assigned to the factor Usually amounts to 0.3–1.0% of the account receivable value.
    The price can be increased by premium in case of non-recourse factoring.
  2. Interest: Interest is charged on advances provided for assigned accounts receivable based on short term bank credit rates.

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