What are Confirming agreements?
After having made a brief presentation on Factoring as a means of financing for companies, we are going to focus on Confirming agreements which, basically, is a Reverse factoring since it is initiated by the customer and not by the provider.
It is a type of financial service consisting of managing payments from a company to its suppliers, usually national ones – although there are also Confirming agreements international -, and which includes for the creditor the possibility of collecting payments before their due date.
Confirming is a payment management service and not debts
Through the contract of Confirming a company commissions a financial entity (or specialized private company), in exchange for a certain commission, the management of the payments of the invoices issued by the supplier of goods or services of the first.
In principle it does not imply any cost for the provider, unless it resorts to advance invoices.
This does not mean that the operation is not advantageous for the provider, since said cost is usually less than the cost of a traditional advance or discount.
In addition, it has a system of agility and speed in the management of the invoices it issues, there is no risk of non-payment if payment is anticipated, accessing a fast, flexible and easy financing system.
This service is offered to pay invoices before their due date or to obtain financing from the bank that the supplier was not willing to grant , in this way, the relationship between client and supplier is not damaged and the client obtains the time it requires.
How Confirming agreements work
Once the service has been performed (the invoice and the merchandise have been received) the client iinforms the bank of the conformity of the invoice and the conditions and amounts to be paid to the supplier.
For its part, the entity will notify the supplier of the confirmation of its invoice, indicating the costs and conditions of the advance – the provider can either anticipate or wait for expiration-.
Its use is frequent in companies that have diversified suppliers, that wish to delay payment to suppliers or that have a complex payment system.
As we can see, the company must notify the invoices of its suppliers to the financial institution through a bank form and, of course, have a sufficient balance for payment.
And for its part, the financial institution must notify the provider of the confirmation of your payment.
Advantages of Confirming Agreements
Among the main advantages of confirming are: ease of payment management, reliability as it is backed by a financial company strong>, cost savings in the issuance of checks and promissory notes, greater ease in avoiding the complications of direct debit of receipts, avoiding telephone calls from suppliers asking about the status of the invoices and saving time both in payments and in follow-up of accounts.
Disadvantages of Confirming Agreements
The main disadvantage of confirming for the client is that they have to work with the financial entity. On the other hand, the provider loses the initiative in charging, ceding it to their customers.
And financial institutions concentrate a large amount of financial risk on a single client, which in case of difficulties can be a serious problem.