Difference Between Confirming and Factoring

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Within the financial world, there are too many concepts, and it is common to get confused if you are not a person who knows the field. Some of those concepts that cause confusion are the confirming and factoring, whose main activity may be somewhat in doubt. That is why in this post we are going to clarify the Difference between confirming and factoring.

what is confirmation

When we talk about confirming, we refer to a financing procedure in which the financial company assumes the management of payments by a company to its suppliers in the event that the company cannot meet the invoices in the stipulated period of time. Thus, trust is maintained in the company-supplier relationship, since guarantees that the payment will be effective

exist two ways to pay of these invoices. First, if the payment is made in advance, the financial entity will charge suppliers a commission which will vary depending on the advance time that has been carried out. On the other hand, payment can also be made on the invoice due date. 

Resorting to this financing method means great benefits for all parties involved. In the case of the refugee company in the confirming, you will save on the cost of administration tasks and will have important tax deductions which translates into greater liquidity. In addition, it will remain worry free about payments since this task will be the responsibility of the financing company in question. 

by the suppliers receiving payment, their benefit is that they can have more liquidity when they need it, given that may request advance payment, and the trust between both companies will remain intact. 

The confirm has different modalities that you are interested in knowing before deciding to resort to it: 

  • Simple: In the case in which the provider decides to rReceive payment on the day the invoice is due, we will talk about a case of Confirming Simple. 
  • Investment: The payment of the invoices will be made before the expiration date is fulfilled. In this case the customer can enjoy a small discount when you have to repay the requested credit
  • financing: We talk about Confirming Financing when payment of invoices has already expired. In this case, the financial institution will charge a surcharge to the company for the transaction.

In this type of contract, the default risk is assumed by the financial institution, which means that the company requesting the confirming contract is completely free of risk for not being able to pay the invoices. 

A little review of factoring

A factoring contract has precisely the opposite implications of confirming. While confirming refers to the payment of invoices, Factoring is about collecting invoices. 

It is a way to obtain very fast liquidity, and save on administrative costs since the financial company will assume the tasks of administration and collection management from customer invoices to the company. 

A factoring contract has many advantages but also disadvantages. But before knowing this, it is important that you keep in mind the different types of factoring contract what you can find: 

  • no recourse: The financial entity assumes both collection management and the risk of non-payment of the client's suppliers. 
  • with recourse: In this case, the customer requesting factoring is responsible for assuming the risk of non-payment of your clients.
  • Secret: When secret factoring is used, the identity of the company requesting the payment remains completely anonymous, thus guaranteeing the stability of trust and credibility between companies.
  • National: This type of factoring is performed when the company requesting the collection and its suppliers are located within the same country
  • International: International Factoring is the case in which the company that requests the collection of invoices and its suppliers are located in different countries. 

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Difference Between Confirming and Factoring

Now that you know the confirming and factoring concepts, the time has come to make their differences clear so that you can choose well which financing method you need for your company: 

  • He confirming contract is done about providers, Meanwhile he factoring is done on customers
  • Meanwhile he confirming is a bill payment service, he factoring is an invoice collection service to suppliers. 
  • In it confirming payment to suppliers is facilitated while with the advance of invoices related to the factoring, the requesting company obtains the liquidity it needs. 
  • With the factoring, it is the client who ensures the collection of their invoices while in the case of confirming, it is the suppliers who have the security of receiving their corresponding payment. 
  • In the case of resorting to confirming, improves the relationship with suppliers since they are aware that the payment of their invoices will be effective, while with the factoring the client will have greater flexibility to negotiate payment terms with their suppliers, since in any case, orYou will have the liquidity you need when you need it.

Conclusion

Finding the financing you need first requires a full understanding of the avenues that can be accessed. The difference between confirming and factoring It may not be very clear at first, but we hope that this article has helped you to clarify your doubts. 

At Alter Finance we are leaders in alternative financing, and we have financial advisory services for companies, in order to help them follow the most appropriate financing path for their needs.

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