Leasing and factoring: special forms of debt financing

Table of Contents

leasing

In the case of leasing, equipment is rented. In principle, all the necessary equipment (movables and real estate) can be rented. In contrast to the leasing of private households, companies are often not interested in buying the leased object at the end of the term, but rather attach importance to being provided with a new leasing object so that they are up to date with the latest technology are. For the process, see the diagram on the following page.

Factoring

With factoring, companies sell their own money claims that they have against their own customers to a factor in order to get the money earlier.
The sequence: First, the factoring contract is concluded. The factor then buys the receivables and pays the purchase price, deducting interest, until the due date of the outstanding receivables and fees for its own service (see also the diagram on the following page).

In addition to the short-term financing function for the companies, the services that the factor institute takes on are most interesting.

The standard includes the assumption of the default risk: This del credere function includes that the factor takes over the risk and the necessary steps such as dunning, collection and legal action. As a rule, a factor only accepts claims for which the creditworthiness check of the debtor is positive.

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