Factoring in various versions

Service Business

In transactions between entrepreneurs, a situation often occurs when the seller gives the buyer goods (or provides services), issues an invoice, setting a payment date after, for example, 30 or more days. This is the sale of the so-called deferred payment date. This solution is often a bow of the selling party to the contractor - he can pay at a convenient time, of course within the period specified in the invoice (or contract) - and its purpose is to gain a loyal customer. At the same time, it constitutes a considerable burden for the financial liquidity of the company-seller. In order to liquidate funds from such transactions, the entrepreneur may use the services of purchasing receivables by the factor. Depending on the agreed conditions, such an agreement may take the form of full, incomplete or mixed factoring.

What is factoring?

Factoring is a financial service consisting in the purchase of a non-overdue receivable with a deferred payment date by a factor, i.e. a bank or other factoring company. In other words, the entrepreneur sells his receivables, receiving cash in return, which he can use for the day-to-day operations of his company. It is very important that the sold receivable is not overdue, i.e. that there is a real chance that the counterparty will pay its liabilities in advance, without any delays.


In legal terms, factoring belongs to the so-called unnamed contracts, therefore it is not regulated by specific provisions of the Civil Code - the principles of free contracting under Art. 3531 of the Civil Code

Depending on the provisions of the factoring agreement regarding the management of risk related to trade in receivables (i.e. who will be responsible for collecting the receivables in a situation where the contractor fails to pay on time), three types of factoring can be distinguished:

  • full,

  • incomplete,

  • mixed.

Full factoring

The first type of factoring is the so-called full factoring (other names include proper or non-recourse). In the case of this type of contract, both the receivables and the entire risk associated with it are transferred to the factor. In such a situation, after the sale of receivables, the company no longer worries about monitoring it, and does not have to bear the costs related to its recovery in the event that the contractor fails to comply with the provisions of the contract. All these obligations are on the factor. Due to the fact that the factoring agent gets rid of all risk related to receivables, full factoring is the most expensive option.

Online Tips

Do you run a company and have questions?

Take advantage of the expert advice of the Entrepreneur's Guide

Online advice for businesses

Therefore, it is recommended to use it only in transactions with a partner about which the entrepreneur is not sure - if there is any doubt as to the collectability of a given debt, it is worth using this form of factoring.

Incomplete factoring

Otherwise, the issue of the risk of default of a given debt is solved in incomplete factoring (also called improper or with recourse). In this case, the factorer takes over from the entrepreneur the unpaid receivable until its maturity. The owner of the company must bear in mind that in the event that his debtor does not pay the amount due within the period specified in the contract or on the invoice, then the factor has the right to claim the full amount back together with the costs incurred by him. In such a situation, the company selling the receivable must collect the amount due from an unreliable contractor on its own. The reason for the breach of the incomplete factoring agreement may be any difficulty related to the reimbursement of receivables.

Partial factoring is mainly used to liquidate receivables and obtain cash needed at a given moment. Due to the fact that in this case the risk related to the debt is not transferred, this solution is cheaper than full factoring.

Mixed factoring

The last type of factoring combines the features of the two previously discussed. Mixed factoring is associated with the fact that the factor takes over the risk, but only up to the amount specified in the contract. Insolvency above a certain limit entails liability on the part of the company that sells its receivables. The mixed nature of this form results from the fact that, up to a certain amount, it adopts the features of full factoring, and above it - incomplete factoring.

To sum up, which form of factoring will be appropriate depends on the nature of the receivables held, the financial situation of the entrepreneur and certainty as to the contractor. Before making a decision, it is worth analyzing the chances of recovering debts from a given client and how much money the company is able to spend on possible costs related to collecting money.