Domestic factoring refers to the provision of financing and collection services for the receivables of a company that operates within the domestic boundaries of a country. It is a financial service that helps businesses to manage their cash flows efficiently by converting their accounts receivables into cash through the sale of their invoices to a factoring company.
In a domestic factoring arrangement, a factoring company purchases the accounts receivables of a business at a discounted rate and takes on the responsibility of collecting payments from the customers. The factoring company typically provides a certain percentage of the invoice value upfront and the balance, less a factoring fee, once the customer pays the invoice.
Domestic factoring can be recourse or non-recourse. Recourse factoring means that the business is responsible for any losses that occur due to customer defaults. Non-recourse factoring, on the other hand, means that the factoring company assumes the credit risk and is responsible for any losses due to customer defaults.
Domestic factoring is widely used by small and medium-sized enterprises (SMEs) to improve their cash flow and working capital management. It can also provide other benefits such as credit risk mitigation, reduction in administrative costs, and improved efficiency in the collection process.