Confirming is a financial product where a company (client) delivers the integral administration of pending payments to its suppliers (beneficiaries). Thus, it delegates the management of said disbursements to a financial or credit institution.
In a confirming operation, the bank or credit institution is in charge of managing the payments to its client's suppliers, and generally offers financing to both parties.
In other words, both the debtor (customer) and the beneficiary (provider) can access a credit from the bank so that it can advance or cover a payment.
Confirming is related to the factoring figure, but they act in the opposite direction. In the case of factoring, it is the provider who looks for a credit institution to finance it and thus cover the costs of late payments from its customers (debtors).
In confirming, on the other hand, it is the client of one or more providers who requests the bank to manage their payments to providers (debts).
Three agents participate in a confirming operation: the issuer, the credit institution and the provider.
The issuer looks for a credit institution to optimize the management of its debts with suppliers (beneficiaries). The latter can wait until the expiration of their invoice or request an advance from the credit institution.
In the following diagram we see the mechanism:
The supplier company issues an invoice for its services, the customer accepts it and sends it to his credit institution. Subsequently, said institution offers the supplier an advance payment of its invoice (charging a commission) or that it expects the payment on the due date.
The credit institution charges a commission or charge to the client for the service of managing their debts. In addition, it can offer financing so that you can deliver the payment of the invoices after the due date. As a counterparty, the entity will charge you some commission or interest.
Advantages and disadvantages of confirming
Among the advantages and disadvantages of confirming we can highlight:
- From the point of view of the issuer (debtor): The advantages refer to the fact that the management of its suppliers is facilitated, the ability to negotiate with the bank is improved and financing can be accessed. Among the disadvantages are the costs for the administration service and not being able to access means of payment not considered by the credit institution.
- From the point of view of the provider (beneficiary): Among the advantages to the provider are greater security in payment and the possibility of accessing financing quickly. Meanwhile, the main disadvantage is the cost of financing (which can be high).
- From the point of view of the credit institution: Among the advantages for the entity are greater access to customers, loyalty and greater volume of business. However, the downsides are administration costs and the potential for default by your customer.
Tags: banking did you know what history