Factoring and Confirming: Key differences and when to use each

What is factoring and how does it work?

Factoring is a financing instrument through which a company assigns its outstanding receivables to a financial institution (the factor) in exchange for receiving the amount in advance, net of a fee and an interest charge. In practice, the company does not wait until the invoice falls due: it receives payment almost immediately — typically between 80% and 100% of the face value — while the factor takes responsibility for collecting the debt from the customer.

It is particularly well suited to companies with long collection cycles, customers with payment terms of 60, 90 or 120 days, and growth-stage businesses that need liquidity to fund their expansion without drawing on traditional credit lines. Factoring is not just an emergency solution: used strategically, it is a financial planning tool that aligns the collection calendar with the company's real treasury needs. In hypergrowth phases, for example, it allows each new invoice to be converted into cash within 24 hours to fund the next production or procurement cycle.

Types of factoring: with recourse and without recourse

The most important distinction in factoring is who bears the risk of the customer's insolvency:

• Factoring with recourse: the financial institution advances the invoice amount, but if the customer fails to pay, it can recover the advance from the assignor company. The credit risk remains with the company. It is less expensive but offers less protection. Accounting-wise, the receivable remains on the balance sheet: the trade debtor asset is retained alongside a corresponding financial liability, increasing gross leverage.
• Factoring without recourse: the factor assumes the entire insolvency risk. If the customer fails to pay due to bankruptcy or insolvency, the assignor company is not required to return the funds received. It also allows the receivable asset to be derecognised from the balance sheet, improving the Debt/EBITDA ratio and presenting a cleaner balance sheet to investors and auditors. Particularly valuable in M&A processes or when seeking long-term financing.

Disclosed and undisclosed factoring

Beyond the risk dimension, there is another practically relevant distinction: whether the customer knows or not that their invoice has been assigned to the factor.

• Disclosed factoring: the debtor is formally notified that the invoice has been assigned. The customer pays directly into the factor's account. This is the most common and transparent arrangement.
• Undisclosed factoring (silent factoring): the customer continues to pay the assignor company, which then transfers the funds to the factor. The commercial relationship remains intact from the customer's perspective and avoids any negative perception regarding the company's liquidity position. It typically involves slightly higher management fees due to the greater administrative complexity.
• Export factoring: a specific arrangement for international sales, where the factor manages the foreign customer's credit risk, collection under other legal jurisdictions and, in many cases, the international credit insurance. Particularly useful for SMEs beginning to export that lack the resources to manage these risks internally.

Advantages and disadvantages of factoring

• Immediate liquidity on outstanding invoices, without waiting for the due date.
• Outsourcing of collections management: the factor handles follow-up and recovery.
• Improvement in working capital and reduction of Days Sales Outstanding (DSO).
• Without-recourse: protection against bad debts and balance sheet improvement.
• Financial cost: fees and interest can exceed those of a revolving credit facility if not properly negotiated within a competitive banking pool.
• Rigidity risk: if the factor reduces limits on a key customer, the company loses a planned source of liquidity.
• In disclosed factoring: heavy-handed collection management by the factor can strain relationships with strategic customers.

What is confirming and how does it differ from factoring?

Confirming is a supplier payment management and financing service. Unlike factoring, which is initiated by the company holding outstanding receivables, confirming is initiated by the paying company: it instructs a financial institution to manage its supplier payments centrally, confirming that the invoices will be settled on the due date. The supplier, if it wishes, can request early payment before the due date, bearing the financial cost of the discount.

The distinction is fundamental: factoring is a tool for the seller; confirming is a tool for the buyer. Both operate on the same underlying cash flow — the commercial invoice between a company and its supplier — but from opposite ends of the value chain. Confirming is particularly powerful for SME suppliers: it allows them to access financing at the buyer's interest rate (typically a larger, more creditworthy company), which can represent a significant reduction in their effective cost of funding compared to their own credit lines.

How confirming works for companies and suppliers

• The paying company validates its supplier invoices and sends the payment instruction file to the financial institution.
• The bank notifies each supplier that the invoice is confirmed and that payment is guaranteed on the due date.
• The supplier can choose to wait for the due date and receive the full amount, or request immediate early payment by bearing the discount cost.
• Benefit for the supplier: access to immediate liquidity on invoices backed by the paying bank, with no default risk and without the transaction counting as debt in the credit register.
• Benefit for the paying company: centralisation and automation of payments, stronger supplier relationships and a projection of financial solidity that may translate into better procurement terms.

Types of confirming: with and without recourse, with and without financing

• Standard confirming (without recourse): the most common arrangement. The supplier requesting early payment bears no liability if the paying company fails to settle the debt with the bank. The bank assumes the risk based on the paying company's creditworthiness.
• Confirming with recourse: less frequent. If the paying company fails to reimburse the bank on the due date, the bank can recover the advance from the supplier.
• Buyer-financed confirming (with post-financing): the most strategic arrangement for the paying company. The bank pays suppliers on the original due date but grants the paying company an additional 30 to 60 days to reimburse the amount. This converts trade payables into short-term financial debt. Important: once activated, auditors typically require the debt to be reclassified from trade to financial, which may impact banking covenants.
• Early payment confirming: the company uses confirming to execute early payments in exchange for an agreed commercial discount with the supplier. This directly improves the paying company's contribution margin.

Confirming as a supply chain loyalty tool: offering the supply chain access to competitive liquidity reinforces commercial relationships and may improve negotiated price and payment terms with suppliers.

Factoring vs confirming: comparative overview and key differences

Who initiates the transaction: company or supplier?

This is the most important conceptual distinction. In factoring, it is the company holding the outstanding invoice — the supplier or service provider — that assigns that invoice to the bank to obtain liquidity. The customer may have no say in this process and simply receives a notification of the new payment account.

In confirming, it is the paying company that takes the initiative: it contracts the service with the bank, decides which suppliers are included in the programme and under what payment terms. The supplier cannot initiate a confirming arrangement over its customer if the customer has not previously set up the facility. This asymmetry has a key financial implication: in factoring, the SME assignor's cost depends on its own risk profile; in confirming, the SME supplier accesses financing at its customer's interest rate — typically a more creditworthy company — which can significantly reduce its effective cost of funding.

Balance sheet and treasury impact of each instrument

• Factoring without recourse: allows the trade receivable to be derecognised from the balance sheet, improving the liquidity ratio and Debt/EBITDA. The cash received does not count as debt but as customer collection. A highly effective tool for cleaning up the balance sheet ahead of a due diligence process or a financing round.
• Factoring with recourse: the receivable cannot be derecognised. The trade debtor account is retained and a parallel financial liability is recognised for the amount received, increasing gross leverage.
• Standard confirming: the supplier payable remains as trade debt on the balance sheet, with no impact on banking covenants.
• Post-financed confirming: once the additional payment period is activated, the debt must be reclassified from trade to short-term financial debt, which may impact the leverage limits agreed with lenders.

Both instruments improve the cash conversion cycle but from opposite ends: factoring acts on the Days Sales Outstanding (DSO); confirming acts on the Days Payable Outstanding (DPO).

When to use factoring and when to use confirming

The choice between factoring and confirming depends not only on financial cost, but on the company's business model, financial cycle and the nature of its relationships with customers and suppliers. In many cases, both instruments are complementary: a company can use confirming to manage its supplier payments and factoring to advance the collection of its issued invoices, simultaneously optimising both ends of its working capital.

Factoring is the best option when…

• The company holds a large portfolio of outstanding invoices with long maturities (60–120 days) and needs immediate liquidity.
• It wants to outsource collections management and reduce the administrative burden on the finance department.
• It needs financing without increasing formal indebtedness or drawing on available bank credit lines.
• The company works with a small number of very large customers (retailers, contractors, public sector) that impose extended payment terms: without-recourse factoring also eliminates the catastrophic risk of a default by a customer representing a high proportion of revenue.
• The company is in a hypergrowth phase where sales are growing faster than its self-financing capacity: factoring converts every new invoice into cash within 24 hours to fund the next production cycle.
• For international sales where managing collection under foreign legal jurisdictions is complex: export factoring outsources these risks and administrative processes.

Confirming is the better fit when…

• The company has a large number of suppliers with recurring payments and wants to centralise and automate the process.
• It wants to strengthen supply chain relationships by offering suppliers access to competitive liquidity at no additional administrative effort on their part.
• The company identifies that its suppliers face high financing costs: by offering confirming, it can negotiate a reduction in the price of supplies (early payment discount) in return, directly improving its contribution margin.
• It seeks to extend the effective payment period without damaging commercial relationships with suppliers or their financial health.
• The paying company has a strong credit rating and can transfer that financial backing to its supply chain in the form of more favourable financing terms.

The optimal choice depends on the company's business model and financial cycle. In many cases, factoring and confirming are not mutually exclusive: a company can use confirming to manage its supplier payments and factoring to advance the collection of its issued invoices, simultaneously optimising both ends of its working capital.

The role of the financial adviser in selecting and negotiating these instruments

The decision between factoring and confirming is not merely technical — it is strategic. It requires analysing the complete financial cycle, the risk profile of customers and suppliers, the balance sheet impact and consistency with the overall financing structure. The decision should not be made in isolation but integrated within the company's global banking pool to avoid risk concentration, guarantee overlaps or contractual clauses that restrict operational flexibility.

A specialist corporate finance adviser can help select the most appropriate instrument and negotiate the best conditions — in terms of cost, limit and coverage — with financial institutions. This encompasses not just the nominal interest rate, but the hidden charges — opening fees, management fees, risk premiums, operational costs — that often inflate the effective cost disproportionately.

How to optimise the financial cost of factoring and confirming

The true cost of these instruments comprises several components that must be analysed separately:

• Spread over Euribor: the interest rate applied to the advanced capital. With the 12-month Euribor around 2.5%, a competitive spread for a creditworthy SME falls between 0.75% and 2.5%, depending on debtor risk and transaction volume.
• Management fee: a charge per invoice processed. Negotiable based on total annual assignment volumes.
• Risk premium (without-recourse factoring): the premium for insolvency cover. This can be optimised if the company already holds its own credit insurance policy and assigns the rights to the financial institution.
• Operational charges: opening fees, stamp duty, transfer costs. A financial adviser will seek to eliminate these line items that inflate the effective cost without adding value.

Comparison between traditional banks and specialist fintech platforms (such as Novicap or MytripleA), which typically offer more transparent cost structures and a fully digital workflow, reducing indirect administrative costs.

Integrating factoring and confirming into the company's financial strategy

Factoring and confirming are not standalone tools: their greatest value is realised when they are embedded within medium-term working capital planning. A fractional CFO or specialist financial adviser can help determine when these instruments complement traditional bank financing and when they can partially replace it, reducing the total cost of funding and improving operational flexibility.

A further factor to consider in 2026 is the mandatory adoption of B2B e-invoicing under Spain's Ley Crea y Crece. Its implementation will facilitate technical integration with factoring and confirming platforms, reducing manual errors and accelerating confirmation and advance processing times. Companies that align their financial management with this new regulatory framework will gain a competitive advantage in accessing these instruments.

How Maraz Corporate Finance helps optimise your company's financing

At Maraz Corporate Finance, we analyse each company's working capital requirements on an individual basis, taking into account its receivables and payables cycle, sector, customer and supplier structure, and medium-term financial objectives. Based on that diagnostic, we select and negotiate the best factoring and confirming options available in the market, supporting the business owner throughout the implementation and monitoring process.

• Diagnostic review of the financial position and working capital cycle.
• Selection of the most appropriate instrument based on the business model and balance sheet impact.
• Negotiation of terms with banking institutions and specialist financial providers.
• A tailored proposal aligned with the company's actual receivables and payables cycle.
• Support throughout implementation and ongoing monitoring.
• Close working relationship with the business owner and full confidentiality throughout the process.

If you would like to explore whether factoring or confirming can improve your company's liquidity, contact our team for an initial no-obligation consultation.

Javier de Rojas Roca de Togores

Socio - Maraz Corporate Finance

FAQs on factoring and confirming

What is factoring and what is it used for in a company?

Factoring is a financing instrument through which a company assigns its outstanding receivables to a financial institution in exchange for receiving the amount in advance. It serves to improve liquidity, reduce Days Sales Outstanding and outsource collections management. In the without-recourse arrangement, it also allows the company to eliminate bad debt risk from the balance sheet and present a cleaner financial position to investors and lenders.

What is confirming and how does it differ from factoring?

Confirming is a supplier payment management and financing service provided by a financial institution to the paying company. Unlike factoring — which is initiated by the party holding the outstanding receivable — confirming is initiated by the paying company: it confirms its payment commitments to the bank and allows its suppliers to request early payment if they wish. Factoring operates on the asset side (trade receivables); confirming operates on the liability side (trade payables).

What is the main difference between factoring and confirming?

The main difference is who initiates the transaction and from which position in the commercial chain. Factoring is a tool for the seller; confirming is a tool for the buyer. In factoring, the bank assesses the creditworthiness of the assignor's customers. In confirming, the bank assesses the creditworthiness of the paying company. This asymmetry determines which party has easier access to each instrument and on what terms.

When is it better to use factoring rather than confirming?

Factoring is preferable when the company holds outstanding invoices with long maturities and needs immediate liquidity, wants to outsource collections management, seeks financing without increasing formal indebtedness, or needs to protect itself against the default risk of key customers through the without-recourse arrangement. Confirming is the better fit when the company wants to centralise supplier payments, offer competitive financing access to its supply chain, or capture early payment discounts.

Which instrument improves a company's liquidity more: factoring or confirming?

It depends on which side of the financial cycle the company wants to optimise. Factoring directly improves the liquidity of the collecting company by advancing the receipt of its issued invoices. Confirming improves the liquidity of suppliers that opt for early payment, although for the paying company it may extend its effective payment period through post-financing. In many cases, both instruments are complementary and can be used simultaneously to optimise both ends of the working capital cycle.