The liquidity of your company, in financial terms, is a very important factor. The Factoring Line emerges as an alternative to solve the need to generate cash liquidity. How does it work? It has 2 fields of action. The first, and most used in practice, is the model by which companies have their accounts receivable materialized by means of bills; these are classified within the assets of their balance sheet but are not reflected as immediate availability. Then, due to liquidity needs, the option of factoring arises, in which accounts receivable are sold to financial institutions which buy them at a lower percentage (discount), usually 90% or as agreed or determined by the financial institution due to several factors.
As benefits of this operation, we can point out that it eliminates the long waiting time that may arise for the payment of our accounts receivable; in this way we would be transforming credit sales into cash sales. Among other advantages we have the reduction of collection risk on the part of your company, since these are transferred to the financial institutions that acquire them and this reduces your transaction costs.
Some financial institutions in our country offer this service on a regional basis in Central and South American countries through their network of banks, which can facilitate your company's business with local and foreign clients.
The other field of action of Factoring consists of obtaining a line of credit for the immediate payment of suppliers; in this case the financial institution provides a line of credit for the exclusive financing of accounts payable, which generates benefits because it gives your company bargaining power with your suppliers as it ensures payment with a shorter deferral period.