Factoring

FACTORING

What is Factoring

Factoring is the purchase of short-term financial rights, both current and future. It is also defined as a financial service that enables quick and flexible access to cash by purchasing receivables with deferred payment terms.

Companies that operate on an open accounts system can assign their receivables to the “Al-Taamir Leasing and Factoring Company” (Aloula) and benefit from the following:

  • Receiving advance payments against the invoice.
  • Managing customer accounts.
  • Collecting receivables.
  • Reducing administrative burdens.
  • Protection from the risks of customer defaults.

Types Of Factoring

1. Direct (Traditional) Factoring

This occurs when the financial rights, both current and future, of the seller, due from the debtor, are purchased. In this case, the debtor must be a merchant (a company with a commercial registration), and the client of the factoring company is the seller.

2. International Factoring

This happens when the factoring company provides factoring services to an exporter for amounts related to the value of the exports owed to them, or when the factoring company provides services to an importer for amounts related to the value of foreign imports to the local market.

At the end of the contract the Ownership of the asset will return to the original owner.

3. Consumer Factoring

This occurs when the financial rights, both current and future, of the seller, due from the debtor, are purchased. The debtor in this case may be an end consumer (an individual), according to the rules and regulations set by the Financial Regulatory Authority, and the client of the factoring company is the seller.

At the end of the contract the Ownership of the asset will return to the original owner.

4. Reverse (Purchasing) Factoring

In reverse factoring, the factoring company pays the seller (supplier) the value of the receivables, providing financing to the client by settling the receivables on time. In this case, the debtor is the client of the factoring company.

At the end of the contract the Ownership of the asset will return to the original owner.

5. Factoring of Financial Rights Arising from Margin Purchases

This occurs when the factoring company factors the financial rights arising from margin purchases for brokerage firms approved by the Financial Regulatory Authority to engage in margin purchases. In this case, the client of the factoring company is the brokerage firm.

At the end of the contract the Ownership of the asset will return to the original owner.

Advantages of Factoring

  • Guarantee of immediate cash flow for the client without the need to wait until the invoice due date, with up to 100% of the financial rights of the seller.

    • Provision of better payment terms for clients.
    • Ease and speed of receivables collection.
    • Improvement in working capital performance.
    • Positive impact on the balance sheet by improving financial ratios.
    • Enables clients to offer competitive sales terms to buyers without affecting their cash liquidity.
    • Increase in sales volume and the ability to open new markets.
    • Increase in purchase volume without putting pressure on the client’s cash liquidity.
    • Reduction of administrative burdens for the company, such as collections and customer account management.
    • Improvement in clients’ creditworthiness.

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