Factoring in theory and practice

Service Business

Factoring is a relatively young phenomenon in Poland. It appeared on the market in 2008 and is still dynamically developing. For many entrepreneurs, it is still a foreign concept, so in this article we will explain what factoring is in theory and practice.

Factoring - definition

The professional term factoring, which can be found in books on financial matters, says that it is one of the forms of financing short-term contracts, consisting in the purchase of trade receivables by specialized factoring institutions (including, for example, banks).

More understandable is the definition taken from the dictionary of the Polish language, according to which factoring is the purchase of enterprise receivables. Importantly, we are talking about early payments, i.e. those whose payment deadline has not yet expired. This solution is a form of business financing and at the same time securing the enterprise against the risk of late payments on the part of contractors. This is to avoid a loss of financial liquidity, as the trader quickly and easily accesses funds for previously made commercial transactions.


Factoring should not be confused with debt collection. Factoring and debt collection are two different services. The main difference is that factoring consists in taking over unpaid debt, while debt collection deals with the purchase of receivables after the payment deadline.

Factoring participants

There are three entities in factoring.

  • FACTORANT - a company that has decided to use the factoring service, i.e. it wants to receive payment for services rendered or goods sold through an external institution, before the payment deadline.
  • DEBTOR - a recipient who is obliged to pay the payment resulting from the invoice or cooperation agreement for the service provided or the goods received.
  • FAKTOR - an external institution that specializes in the purchase of early receivables of an entrepreneur (factorer) and provides him with additional services related to servicing these receivables.

Forms and division of factoring

Due to the debtor's solvency, there are three types of factoring:

  • Full (proper) factoring - the factor buys the trade receivable from the factorer and completely takes over the risk of the debtor's insolvency. The factor enforces the debt from the debtor. This form of factoring is by far the most expensive.
  • Incomplete (improper) factoring - the factor buys only the commercial receivable from the entrepreneur without the risk of the debtor's solvency. It consists in the fact that when the debtor does not pay the debt, the obligation to pay it will rest with the entrepreneur.
  • Mixed factoring - the factor buys the debt with the risk of the debtor's insolvency, but only up to a certain amount. Therefore, if the debtor does not pay the debt, the factor covers the debt up to a certain amount.

Factoring is also divided by the prism of the date of notification of the conclusion of a factoring agreement:

  • Open factoring - one of the parties to the factoring agreement is obliged to immediately inform the debtor about the concluded agreement in order to make him aware of the necessity to pay for the receivable to the account of the factor, not the factorer.
  • Semi-open factoring - the debtor is informed about the conclusion of the factoring agreement upon receipt of a request for payment of receivables.
  • Secret factoring - the debtor is not notified about the conclusion of the factoring agreement. If the debtor pays the claim to the factorer's account, the factorer transfers it to the factor.

In addition, factoring should be divided according to the moment of receipt of payment for the sold receivable:

  • Discount factoring - the factor takes over the receivable at the time of concluding the factoring agreement. In this case, the date of payment by the debtor is irrelevant.
  • Advance factoring - the factor pays the factorer an advance on the receivables.The factorer receives the remaining amount of the claim at the time of actual payment by the debtor.
  • Maturity factoring - the factorer will receive payment for the sold receivable at the time of actual payment by the debtor.

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Factoring and law

Factoring is based on the foundations of the assignment of receivables, and factoring activities are regulated by the provisions of the Civil Code. In Poland, it is an unnamed contract concluded between the factoring institution and the client, which specifies:

  • the duration of the financial service,
  • rules for the current sale of receivables,
  • payment method,
  • documentation of receivables.

How much does the factoring service cost?

Factoring is a paid service. Faktor charges fees for services rendered. Standard benefits include:

  • interest - the amount of interest results from the current financial situation on the market,
  • commissions - calculated as a percentage of the gross value of the invoice. It is a factoring fee in relation to debt financing,
  • other fees for additional services, including administration of receivables.

The price depends on the risk borne by the entity in connection with factoring services.

Example 1.

The enterprise concluded an agreement with a factoring company for the sale of receivables for the amount of PLN 100,000. The signed contract covers factoring fees, which amount to:

  • interest on the amount of the debt - 13%,
  • fee for the risk of debt collection from the debtor in the amount of 6% of the value of the claim.

How much will the fees for factoring services be?

  • Interest on the amount due (PLN 100,000 x 13% = PLN 13,000)
  • Fee for the risk of debt collection (PLN 100,000 x 6% = PLN 6,000)

Remuneration for the factoring company:

  • PLN 13,000 + PLN 6,000 = PLN 19,000)

The receivable the entrepreneur will receive:

  • PLN 100,000 - PLN 19,000 = PLN 81,000