Types of financial factoring
Financial expenses: what they are and how to calculate them Financial expenses come from third party resources that a company uses to finance its activity. These resources are in fact debt, and from this are derived expenses for the business, such as commissions or interest.
A priori, we could say that financial expenses are generated by strategic decisions related to the financing of a business. Companies usually get into debt with financial institutions in the short, medium or long term to meet other types of commitments, for example, to expand or generate liquidity.
The most frequent financial expenses are commissions and interest. Commissions are the result of transactions with banking institutions. This is the case of account and card maintenance fees. In any case, the amounts are fully deductible as they are justified by the contract or the bank statement.
On the other hand, the interests usually originate in the loans, since these work with an amortization table in the form of installments. Each installment is made up of a part that includes the repayment of the company’s money and another part that represents the interest negotiated in the financing request. The interest portion is also deductible.
Factoring exercises solved
The margin referred to is a rate of 8.8% or 9.8% depending on the business (agricultural or construction machinery) to which the credit granted refers. Of this margin, only a rate of 2.2% is considered a financial component (25% of the margin in the case of machinery and 22.45% in the case of construction loans).
In relation to the same, a number of questions arise regarding its application to the expenses derived from the non-recourse factoring transactions described above, considering the particular characteristics of these transactions and their specific accounting treatment.
In particular, factoring transactions entail a different accounting treatment depending on whether or not the risks and benefits inherent to the ownership of the financial asset have been substantially transferred, which determines a different accounting treatment for the so-called “factoring with recourse” transactions (in which they have not been transferred) and “factoring without recourse” transactions (in which they are transferred and to which the consultation refers).
Reverse factoring in financial factoring
Reverse Factoring is another term used to refer to a Confirming operation. Its purpose is to provide financial resources to both contracting parties, thus avoiding the dreaded cash flow tensions.
For their part, suppliers sometimes have to suffer long waiting times in order to collect their invoices, which reduces the client’s credibility and increases the possibility of losing their suppliers.
The client company goes to a bank to open a Confiming line to suppliers. The bank requests the necessary documentation for the study and analysis of the operation. If it is finally approved, the bank will manage the payments to its client’s suppliers up to a specific limit with predetermined conditions.
The bank advances the amount of the invoice to suppliers so that the client does not have to make a disbursement in exchange for a series of commissions. The supplier receives the amount of his invoice in advance without having to wait for the due date minus an interest rate.
Financial factoring contract
Complementing what was presented in the Tax section of this same edition, financial factoring may be exercised in a usual and professional manner by any person without the need of requiring authorization for such purpose.
In any case, operations will be carried out in accordance with the provisions of the General Law of Credit Instruments and Operations (LGTOC) and when entering into contracts, as well as in the information used to promote their services, express that they are not authorized by the SHCP and are not subject to the supervision of the CNBV (except in the case of regulated Sofom) -art. 87-J, General Law of Credit Organizations and Auxiliary Activities-.
Sofomes that have accounts and documents receivable representing at least 70% of their total assets, or that have income derived from their factoring activities and from the sale or administration of loans granted by them, representing at least 70% of their total income, are considered to be members of the financial system (art. 7, third paragraph, LISR).