Factoring – Everything You Need to Know About Factoring in One Place
It is common practice for small and medium-sized enterprises to sell their goods and services on deferred payment terms. In many cases, payment deadlines are 45, 60, or 90 days. This means that even after the service is provided or the goods are delivered, the customer will pay their obligations only after these deadlines, and often even later. This method of selling creates a bottleneck in the finances of small and medium-sized enterprises.
What is factoring?
Factoring is a financial service that helps you quickly secure the necessary funds when you sell goods or provide services on credit. With factoring, also known as invoice financing, you can sell your outstanding invoices and receive immediate cash, relieving your cash flow, securing working capital, and maintaining current liquidity. The moment you receive a positive response to your application, we will pay you the full value of the invoice minus the factoring fee. The process usually takes up to 24 hours.
How much is the factoring fee?
The factoring fee can vary between 2% and 3% per month. It is calculated daily in proportion to the number of days from the assignment date until the due date of the receivable. During the evaluation process of your factoring request to determine the factoring fee, Alchemist Faktor takes into account various factors such as: your revenue and your buyer’s revenue, credit capacity, typical payment terms in your industry, the number and value of invoices you wish to sell, as well as an analysis of the sector you belong to.
How to sell your invoices?
If you decide to use factoring, you need to contact the Factor and sell your invoices to them. You can think of this process as selling any other asset you own. After purchasing your invoices, the Factor will take over the collection of receivables from your debtors. Before you receive an offer, the Factor will perform a credit analysis of your company and the debtor, and in some cases, may contact the debtor’s accounting department to confirm the existence of the receivables.
Participants in the Factoring Process
As mentioned, a company sells its invoices to the factor, who pays the price for those invoices and waits for their maturity to collect payment on their own behalf. Formally, the parties involved in this process are:
Assignor (Seller) is the user of the factoring service — the party that sells the invoices. The assignor can be a legal entity or an entrepreneur, but not a natural person.
Debtor is the party who owes payment in the transaction for which the invoices are sold. This party has the obligation to make the payment. Like the assignor, the debtor must also be a legal entity or entrepreneur. Factoring transactions are conducted only between such parties.
Factor is a financial institution registered for factoring activities and licensed by the Ministry of Finance to provide factoring services. The factor purchases invoices from the assignor and collects payment on its own behalf. Choosing the right factor is especially important. A good choice can provide you with a business partner who will help you keep your finances in excellent order and offer advice when you need it.
What types of factoring exist?
In Serbia, there are several types of factoring. A company can use just one or multiple types of factoring to meet its financial needs that this service provides.
Types of Factoring:
Classical Factoring involves selling invoices to the factor. Once the invoice matures, the debtor pays the factor directly.Reverse Factoring or Supplier Factoring is a form of financing where the factor pays your suppliers on your behalf, and you repay the factor within an agreed period.
Who assumes the collection risk?
Depending on who bears the risk of collection (traditional factoring), there are two types of factoring: recourse factoring and non-recourse factoring.
Recourse factoring means that the seller (assignor) guarantees the collection of the receivable and remains jointly and severally liable with the debtor. In practice, this means that if the debtor fails to settle the receivable for any reason, the factor can demand full payment of the receivable from the assignor.
Non-recourse factoring means that the assignor guarantees the existence of the receivable but not its collectability. In the case of non-recourse factoring, if the debtor becomes insolvent, the assignor has no obligations towards the factor.
Debtor Notification About Sold Invoices
When you sell your invoices, you are obligated to immediately notify the debtor of this change after signing the factoring agreement. The only change for the debtor is that, instead of paying you, they must now pay the Factor. All other terms and conditions remain the same. You will receive a draft of this notification from the Factor. In this transaction, the debtor has no influence over whether you choose to sell your invoices or not — nor can they, in any way, prohibit you from doing so. This legal arrangement exists for a simple reason: the debtor simply settles their obligation to a different bank account, without any other consequences. Alchemist Faktor is proud to have been helping small and medium-sized businesses grow for many years. We strive to respond to all your questions and requests promptly, so you can stay focused on growing your business.
Why Is Factoring Good for Your Business?
Companies that sell goods and services to their clients on deferred payment terms can face financial difficulties even when their business is performing well. Late payments are a common issue in business environments all over the world. When your customers delay their payments, it creates a cash flow imbalance. Poor cash flow can bring even large companies to their knees. The foundation of sound financial management is liquidity. Many businesses may be solvent but not liquid — meaning they hold significant assets in receivables but lack actual cash. The key benefit of factoring is securing immediate cash as soon as you deliver goods or services. This means you'll be able to settle obligations with your suppliers on time — or even in advance. In doing so, you’ll gain access to better prices and earn greater respect from your suppliers. You’ll avoid late deliveries in situations where you wouldn’t have the funds to pay your vendors. The savings you can achieve this way far exceed the cost of factoring services. Additionally, factoring protects you from the risks of delayed payments or non-payment altogether. This enables you to plan your finances with much more predictability. Most importantly, it allows you to stay focused on what you do best — running your business. With this type of financing, your invoices will always be paid on time. Factoring is not a loan — it’s a transaction involving the purchase and sale of receivables. We call this service Quick Invoice Collection!
Looking to improve your cash flow? Send us a Quick Factoring Request — we’ll get in touch soon and see how we can support your business.
How to Start Using Factoring Services?
To start using our factoring services, here’s what you need to do:
Submit a request for an offer via our online form or directly by email at office@alchemist.rs
Shortly after receiving your request, we’ll get in touch if we need any additional information.
You’ll then receive our offer by email, outlining all key terms of the factoring agreement.
Once you accept the offer, we’ll send you all the necessary documentation by email. You’ll need to return the signed documents either by post or electronically.
You’ll receive the funds to your account within 24 hours after we’ve received the complete documentation.
Is Factoring Regulated by Law?
In Serbia, factoring is regulated by the Factoring Law, adopted by the National Assembly in 2013. The law defines what factoring is, who the participants are, and other important aspects. It’s worth noting that factoring existed long before this law was passed — previously, its legal basis was found in the Law on Obligations.
Perhaps the most important change introduced by the new law is the way a company can become a factoring provider and begin offering factoring services.
You can view the full text of the law at the following link.
If you’re interested in using factoring services, feel free to fill out our Quick Factoring Request.