Every company needs sources of financing for successful operation. To optimize business and long-term success, a company must be liquid, solvent and profitable. A company may be profitable and solvent, but if it is not liquid, it cannot cover its short-term liabilities. In this case, the company can sell the receivables and thus convert them into cash.
The purchase of receivables is mostly handled by banks, factoring companies that specialize in this, and indirectly the purchase of receivables is also done by insurance companies, where companies and financial institutions can insure themselves in case the debtor is unable to settle its debts.
We know different types of factoring, but what they all have in common is that the debtor, the assignor and the factor are present in the redemptions.
Factoring in the world of finance is not a new thing, but due to the growing market competition and the financial crisis we are facing, factoring is taking on a greater role in financing companies that want to stay or become market competitive. The market for the purchase of receivables in Slovenia is still in its infancy compared to the rest of the world, but it is steadily shifting from an alternative source to a traditionally established source of financing.
In the thesis we will focus on factoring by financial institutions. Factoring is handled by banks, insurance companies and factoring companies. The company's factoring portfolio consists of purchased receivables. The values of individual receivables are relatively small, so the number of different redemptions in the portfolio can be quite high. As a rule, the factor requires higher profitability from debtors who pose a higher risk and vice versa; for those who do not pose a risk and are risk-free debtors, such as municipalities, hospitals, etc., it does not require a higher return. Due to the short maturity of receivables, the turnover of the portfolio in the factoring company is fast.
A factoring company has different sources of financing, but they have different requirements and different prices of money. In my dissertation, we will deal with a specific example of money allocation that I encountered in practice and was the motivation for the creation of this dissertation. I will write a model that maximizes the profitability of the portfolio, and I will add practical alternatives to the model. This stems from the fact that in the business world, it is not always about maximizing profits, but also about making decisions that can indirectly recoup our investment.
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