FACTORING AGREEMENT AS A MEANS OF SECURING BUSINESS CONTRACTS

Abstract

The article is devoted to the substantive characteristics of the factoring agreement as a means 
of securing business contracts, which is characterized by an independent rather than additional (accessory) 
nature. In a general sense, factoring is a complex financial instrument and a type of business transaction that 
combines financing, receivables management and credit risk insurance.
According to current legislation and international standards, the factoring service is the subject 
of a factoring agreement, which consists of three key elements: a monetary element (financing), i.e. the factor 
(bank or financial institution) provides the client with an advance payment (usually 80–95% of the invoice 
amount); a legal element (discount / fee), because the client himself cedes the right to claim the debt, and 
the factor receives remuneration for this in the form of a commission or discount (the difference between 
the nominal value of the debt and the amount actually paid) and a service element (administration), when 
the factor takes on the accounting of receivables, control of payment terms and, if necessary, the procedure 
for debt collection. It has been proven that a factoring agreement as a method of securing business contracts 
is a specific type of factoring, often called “collateral” or “security” factoring, under which the assignment 
of the right to claim money is not a valuable transaction for the purchase and sale of debt, but acts as a way 
of guaranteeing that the client will repay the factor other debts (for example, under a main loan, overdraft 
or financing line). International regulatory criteria for factoring are that the factor must necessarily perform at 
least two of the following four functions: financing the supplier, including a loan or advance payment; keeping 
records (accounting aspect) regarding receivables; presentation for payment (collection) of receivables and 
protection against default (non-payment) of debtors, i.e. assuming credit risks.