Traditional factoring involves the “purchase” of a Client’s accounts receivables at a discount to a Factor in exchange for immediate cash. The Factor then collects the proceeds directly from the Client’s Customer, or Debtor. Through this very process, the Client converts a typically frozen asset, Accounts Receivables, into a liquid asset, cash allowing the Client to put its Accounts Receivables to work while limiting debt of the Client’s balance sheet. Legally, in Albania, factoring is a purchase contract based on the Law Nr. 10029, Date 11/12/2006, and an activity regulated by Bank of Albania.
A bit of history
We can find the roots of factoring back to ancient times, since the Phoenicians used a primitive form of factoring, and the Romans were known to sell promissory notes at a discount. The word “factor”itself comes from the Latin, it means “to do”.
In modern times, factoring dates back to the days of the early settlers when colonists needed “facilitators” (the root for “factors”), or selling agents, to help facilitate trade with England and vice-verse.
While a lot has changed in the factoring industry, many of the terms and aspects of the transaction remain very similar to earlier versions.
Factoring is still one of the oldest, easiest and quickest methods of generating working capital for every type of industry where commercial invoices are generated.