Factoring is a financial service that has been familiar to Ukrainian companies since the early 1990s. However, unlike European countries where factoring operations account for 11 to 15% of GDP, in Ukraine, according to 2022 data, they remain at 0.4%.
Why factoring operations deserve special attention, how they increase business efficiency, and what role the WEAGRO service plays in this financial process — let’s try to understand together.
What is Factoring
Factoring is a method of financing a company by a bank or financial institution (factors) that purchases its accounts receivable at a reduced cost and waits for the repayment of financial obligations according to the payment deferral term.
In simple terms, a supplier company sells its unpaid invoices to a factor and quickly receives the expected amount that the buyer was supposed to pay. However, not in full, but minus the commission. At this point, the interaction between the seller and buyer ends, and the factor takes the supplier’s place, whose task is to wait for payment according to the purchase and sale agreement.
Therefore, a factoring company is an intermediary between enterprises and their debtors, providing financing and debt management.
Such an intermediary, which allows the buyer and supplier to conclude a purchase and sale agreement with payment deferral, is our WEAGRO service. Its well-thought-out system takes into account the specifics of agricultural business and provides the most favorable conditions for buying and selling goods in installments.
To obtain installments, the buyer needs to perform simple actions:
- Fill out an application for registration on the WEAGRO service
- Receive an individual calculation of the installment amount
- Order the required goods on the supplier’s website
- Sign a purchase and sale agreement with installment option and pay according to the schedule.
After submitting the application, within 30 minutes you will receive a decision, after which the contract will be signed and money will be transferred to the seller’s account, and the buyer will pay in installments according to the payment schedule.
The Concept of Factoring Operations
Factoring operations are financial transactions in which a company (seller) sells its accounts receivable (invoices) to a factoring company (factor) minus a commission
Let’s examine how factoring operations work using the WEAGRO service as an example.
Suppose company “Alpha” wants to sell goods to its client (farmer) on terms of a 90-day trade credit worth 450,000 UAH, but at the same time needs funds to support current operations. Therefore, it turns to WEAGRO to conclude a purchase and sale agreement with the farmer in installments and receive payment on the day of signing the agreement.
To arrange installments, it is necessary:
- “Alpha” provides the buyer’s EDRPOU code or TIN.
- WEAGRO processes the application and approves installments for the buyer.
- Alpha and the buyer sign a purchase and sale agreement for installment payments. The factor (WEAGRO) provides “Alpha” with money minus commission from the amount, and sends the farmer notification about new payment details for the goods.
“Alpha” receives money immediately without waiting for payment from its counterparties. The farmer has the opportunity to pay with deferral and plan and distribute expenses without losing liquidity. Thus, factoring from WEAGRO for the seller is a convenient and accessible way to receive payment immediately, and for the farmer — to preserve liquidity and increase purchasing power.
Factoring Operations in Ukraine
Factoring as a universal financial instrument can be used in various fields of activity, including manufacturing and construction, trade and services, and the agricultural sector. Despite the difficult situation in our country, agribusiness remains a priority direction in the state’s overall economic activity.
Factoring operations in Ukraine and prospects for their development began to be seriously discussed at the state level back in 2021. At that time, at the XX Anniversary Forum of Financial Directors of Ukraine, a “roadmap” for factoring development for the period 2020-2025 was presented. It included the creation of a specialized UATFF association, conducting marketing activities, changes in legislation, and forming a modern IT structure that would accelerate operations and prevent fraud.
The proposed strategy was based on current data and forecasts. They predicted that factoring in Ukraine would steadily grow according to statistics and by the end of 2025, its share would account for 5% of GDP financing — $10 billion.
The importance of such a project lay in the desire to establish interaction between factors, which today in Ukraine are represented by over 600 companies, and Ukrainian small and medium businesses. According to Prozorro survey data, only 7% of enterprises use factoring services, while 93% have never even tried to obtain them.
Factoring Operations in Ukraine Today
To support domestic producers, at the end of 2023, the “Affordable Factoring” program was launched within the framework of the state program “Affordable Credits 5-7-9%”. The Entrepreneurship Development Fund (EDF) was appointed as its operator, and implementation involved entrepreneurs’ interaction only with state-designated partner banks.
The essence of the state initiative is to provide enterprises with immediate access to funds and restore their liquidity to create new products.
Financial support under such factoring agreements provides interest rate compensation at a level of up to 13% annually. The authorized factor provides funds in the amount of up to 95% of accounts receivable, but the financing amount cannot exceed 150 million UAH.
To use the state program, a business entity must contact a bank and submit a complete package of documents.
But there is an alternative — our modern WEAGRO service. It is based on knowledge of agricultural market nuances and specifically designed to meet the urgent needs of its participants — agricultural producers and suppliers.
First, suppliers register on the WEAGRO service to be able to sell their goods and services to agricultural producers with a deferred payment option. The online service allows signing purchase and sale agreements using digital signatures or uploading already signed documents.
WEAGRO involves three main participants: supplier, farmer, and financial company. Each participant uses their own cabinet for concluding agreements on agricultural installment terms, with payment schedules for installments also being formed in the farmer’s cabinet.
Factoring Agreement: Concluding the Deal
A factoring agreement is a written arrangement between a factor (financial institution) and a client (seller). According to it, the factor purchases the right to receive money from the client’s counterparties for the supply of goods or services. In Ukraine, factoring agreements are regulated by the Commercial Code of Ukraine, the Law of Ukraine “On Factoring” and other regulatory legal acts.
Main legal aspects that must be considered when concluding a factoring agreement:
- Parties — factor (financial institution) and client (seller).
- Subject — transfer to the factor of the right to receive funds according to the purchase and sale agreement.
- Cost of factoring services — the factor has the right to receive remuneration (commission percentage) from the client for services provided. Remuneration is established by the agreement and depends on payment terms, amount of claims, risk level, etc.
- Payment conditions — the agreement provides for the procedure and terms of payment for factoring services.
- Guarantees and obligations of parties — the agreement must contain the client’s obligations regarding the transfer of all necessary documents confirming payment claims, as well as guarantees regarding their validity and absence of any prohibitions or restrictions on their transfer. The factor’s obligations must provide for payment of the client’s claims according to the agreement, as well as control over settlements.
- Risks and responsibility — conditions for risk distribution between parties, including insolvency risk, changes in claim conditions, etc.
There must also be provisions regarding parties’ responsibility for contract violations, dispute resolution methods, contract term, confidentiality and other conditions that meet the parties’ interests and legislative requirements.
Together with WEAGRO, you can agree on standard document templates including an installment purchase and sale agreement template, and WEAGRO employees can provide qualified assistance and advice.
Conclusion
Our WEAGRO online service offers to purchase the desired goods today and pay for them within a term of up to 180 days. The entire process of providing factoring services complies with current legislation but is free from unnecessary hassle and requires only the company code to submit an application for installment approval. If you want modern financial solutions, use the WEAGRO service.
