Factoring – One of the Main Forms of the Financing Small and Medium Enterprises
factoring, factor, client, accounting
Factoring is a service, which is offered by specialized factoring agencies to their clients in case of transfer (sale) or governance of receivables. In fact, it represents a specific mode of crediting which is mostly preferred by small and medium enterprises. In practices of factoring several forms are differentiated depending on scale of property and risk transfer to the factor. According to these circumstances the factoring transactions are recognized by the factor and the client. The factoring services are not so far regulated by any legal provision. For this reason factoring agencies are proceeding in such a way, that contract conditions – because of tax considerations – hide by their form the substance. The paper describes the factoring forms and interprets their correct recognition on accounting, including tax consequences.
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