Future receivables factoring – everything you need to know about future receivables factoring
Future receivables factoring is a financial service where you sell your future receivables to a factor. More cash for your business right away — as soon as you close a deal.
Which receivables can be subject to future receivables factoring?
In this case, the general rule from the Factoring Law also applies: the subject of factoring can be any existing, non-due, or future, whole or partial, short-term monetary receivable arising from a contract for the sale of goods or the provision of services concluded between legal entities and entrepreneurs.
So, for a future receivable to be factored, in addition to general requirements, you must have a signed contract with your buyer or service recipient — meaning the receivable must be determinable.
For example, if you’ve signed a 5-year business premises lease agreement and wish to sell the future rent receivables for the next 6 months — this is a perfect case for future receivables factoring.
Another situation could be a construction contract awarded through a public procurement process. You can sell part or all of the expected future receivables under this contract in advance. Say the contract is worth RSD 50,000,000, you’ve signed it and started work — you sell future receivables to a factor for RSD 20,000,000. As you issue interim statements, their value and fees are deducted from the price.
In short — you need a contract that clearly establishes a high probability that the receivable will actually be created.
How is the factoring fee determined in future receivables factoring?
Unlike classic factoring, where the amount of receivables you assign is known upfront, in future receivables factoring the price is known at the time the contract is signed. The total amount of assigned receivables is only known once the receivable actually arises—that is, when you issue an invoice—and it equals the price we paid you plus the factoring fee.
Since selling future receivables carries higher risk (because the receivable has not yet arisen), the factoring fee for the period from the payment date to the invoicing date is usually higher compared to the factoring fee applied from the invoicing date (the moment the receivable is created). Because the calculation is more complex than in classic factoring, the contract also includes an example of how the fee is calculated.
Is collateral required?
Since factoring of future receivables carries a higher than usual risk, in some cases it will be necessary to provide collateral. Collateral can take the form of a pledge on movable assets or a mortgage on real estate.
Regardless of the type of collateral, we will prepare all the necessary documentation for you and assist throughout the process to ensure everything is completed as quickly as possible.
What are the benefits of factoring future receivables?
Factoring, whether of existing or future receivables, is designed to provide your business with liquidity without incurring debt. Liquidity is a fundamental prerequisite for successful business operations. You will be able to pay your suppliers in advance and on time, which often results in discounts that exceed your factoring costs. You also have the option to enter into contracts without receiving an advance, allowing you to finance the purchase of materials or services without taking on debt. This enables you to be more competitive in the market and to secure contracts that others might avoid due to long payment terms. More money for your business, right when you secure the deal.