Off-balance factoring is a tool for one-off (such as at the end of an accounting period) or permanent improvement of your company’s financial indicators.
The volume of receivables is reduced by their non-recourse assignment to the factoring company. There is no increase in credit exposure or in the amount of other sources. This decreases the balance sum, resulting in improved debt and profitability ratios.
Frequently, off-balance factoring is used by companies where performance of the local management is evaluated by the parent company based on financial indicators. A lower amount of receivables usually means higher remuneration for the company’s Chief Financial Officer or Chief Executive Officer.
The below chart represents the effects of off-balance factoring: