What is Factoring
Factoring is a package of financial services that meet the business requirements of firms selling products or providing services on short-term credit to customers with stable purchasing behavior. It is a legal agreement between the factor (whether an autonomous factoring house or the factoring division of a bank) and the seller where the seller (assignor) assigns to the factor his customer (i.e. debtor) receivables.
The factor’s task is the sales ledger administration, the collection of receivables, the discounting of receivables, and the customer protection against bad debt.
Factoring services include:
- Domestic and International Factoring, depending on the locale of the seller and the buyer. Domestic Factoring involves assignment of receivables relating to the domestic market, while International Factoring involves assignment of receivables exported or imported.
- “Factoring” or “Invoice Discounting”, depending on whether there is notification of the assignment to the debtor or not.
- “Recourse Factoring” if the credit risk remains with the seller (assignor) or “Non-recourse Factoring” if the factor undertakes the credit risk of the debtors (buyers).
The provision of Factoring services in Greece is subject to Law 1905/1990, pursuant to which factoring business can be carried out only by:
- Banks legally established and operating in Greece and
- Companies whose sole purpose is to provide such services
These companies are supervised and monitored by the Bank of Greece.