What is Confirming for companies?
He confirming for companies is a financial instrument that consists of the payment management by a company to its suppliers before the payment due date is fulfilled or when this date has been fulfilled or will be fulfilled soon.
The financial institution can charge a series of interest and commissions to the providers depending on the time in which the collection has been advanced. In addition, providers can decide if they want the collection to be advanced or not, so they would save these commissions in advance and wait to receive the money on the due date of the invoice.
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How does confirming work?
He confirming is a financial procedure by which a financial entity assumes the management of payments by a company towards its suppliers if said company cannot make payments within the period established by the issuance of the invoice, thus maintaining trust in the relationship between them, since payment of the issued invoices is guaranteed.
Payment of these invoices can be made in advance, which is why the financial institution will charge suppliers a commission and a series of interests depending on the time in which the payment has been advanced; or payment can be made on the due date of the invoice.
The use of this financing is a great advantage for all parties involved. In the case of the issuing company means less cost It is administrative tasks and tax deductions that will bring you greater liquidity, in addition to leaving worry-free about meeting payment deadlines, because it is the financial institution that is in charge of this. On the part of the suppliers to whom the payment arrives, it means having greater liquidity since they can advance the receipt of that amount, so they can enjoy it whenever they want and also the business trust between both parties will not be affected at all.
There are different types tools of confirming, which are the following:
- Simple: This is the case in which the supplier decides to receive the payment on the day on which the due date of the invoices is fulfilled.
- Investment: The payment of the invoices will be made effective before the expiration of the date of the same. In addition, if this procedure is carried out, the client will benefit from a small financial discount at the time of repaying the credit.
- financing: The payment of the invoices is made when the payment expiration date has already expired, so the client must pay the bank a surcharge for this transaction.
In these types of transactions, the default risk always is assumed by the financial entity that offers the serviceTherefore, it is always a non-recourse procedure whereby the confirming issuing company is free of any risk of not being able to pay its invoices.
One of the drawbacks of this type of financial instrument is that does not apply to countries that use currencies other than the euro, so those companies that have foreign suppliers outside the euro zone would not be able to access this advantage.
Advantages of confirming
The company's accounting benefits from having a guarantee that payments have been made
Administration tasks become the responsibility of the financial institution, which translates into cost and time savings for the company
By guaranteeing payments, the relationship between suppliers and the company is improved
It is a procedure that guarantees a great simplicity of request and great speed of granting the credit