In Mexico, many companies face liquidity challenges due to long payment terms from their clients. Financial factoring emerges as an effective tool to solve this problem by converting accounts receivable into immediate liquidity. In this guide, we explain what factoring is, how it works, the types that exist, its benefits, and when it is best to use it to strengthen your company’s financial health.
What is financial factoring and how does it help your business in Mexico?
Financial factoring is a financial tool through which a company transfers its accounts receivable (invoices) to a specialized entity in exchange for receiving a portion of their value in advance. This allows companies to access immediate working capital without acquiring traditional debt or pledging assets as collateral.
How does financial factoring work in Mexico?
The factoring process is relatively simple and typically follows these steps:
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The company issues a credit invoice to its client.
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The invoice is submitted to a specialized financial institution.
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The institution evaluates the client’s solvency and the invoice amount.
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A percentage of the invoice value (usually between 70% and 90%) is advanced.
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Once the client pays, the remainder is delivered, minus a service fee.
Types of financial factoring
Recourse factoring
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The selling company remains responsible if the client does not pay.
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Typically offers better rates.
Non-recourse factoring
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The financial institution assumes the risk of non-payment.
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Ideal for mitigating financial risks.
Domestic and international factoring
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Depending on whether the clients are located inside or outside Mexico.
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International factoring requires additional validations and legal coverage.
When is it advisable to use financial factoring?
Factoring is especially useful when:
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Liquidity is needed to operate or grow.
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The company sells on credit to solvent clients.
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Bank debt is to be avoided.
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Cash flow needs to be optimized without waiting 30, 60, or 90 days for payment.
Benefits of financial factoring for Mexican companies
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Immediate liquidity without acquiring debt.
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Improved cash flow.
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Reduced risk of bad debt.
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Greater negotiating power with suppliers.
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Avoids financial costs of bank loans.
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Fast, digitalized process with many institutions.
How much does financial factoring cost?
The cost depends on the invoice term, amount, type of client, and whether it is recourse or non-recourse. It generally includes a discount rate or commission.
Does factoring affect my client relationships?
Not necessarily. Many platforms manage it discreetly and professionally, ensuring a transparent and smooth process.
Conclusion
Financial factoring is a key tool for companies that need to improve liquidity, reduce risk, and remain operational without relying on debt. In the Mexican context, where payment terms are often extended, this solution represents a smart and strategic way to maintain a healthy cash flow and seize growth opportunities.
