Within the business world, one of the concepts, perhaps less well known, is that of confirming. It is a management of payments between customers and suppliers, but it goes much further.
If you would like to know what confirming is, What are the types that exist, how they work and the advantages and disadvantages they have, here we have prepared practical information about it.
What is confirming
According to the RAE (Royal Spanish Academy), confirming is conceptualized as follows: "Contract by which a financial institution undertakes, in exchange for an economic consideration, to manage the payment of the debts of an entrepreneur".
In other words, it consists of offer a service by which the payments that a company has for its suppliers are managed, being able to enable payments before or on the due date of the invoices they present.
How confirming works
How confirming works is quite simple to explain. On the one hand, we have a financial institution (which is usually the one that manages this). This takes the responsibility of making the payment of a series of invoices issued by suppliers. Said payment can be made before the invoice's due date, or on that date, and in this case it is usually the supplier who decides (based on what suits them).
The invoice, therefore, must be sent to the financial institution, while the client must have sufficient liquidity to take care of the amount of these invoices. However, it can also happen that the customer pays that amount after the due date of the invoice. If that happens, it is normally the financial entity that acts as a source of financing for the client, paying the supplier and then recovering that money with the client's payment (and the client then assumes interest and expenses).
Confirming types
Within confirming, there are three types that exist, and each of them has a way of acting that you must take into account. These are:
With and without advance credit
Conclusion two types within the same group since there is a confirming without anticipation, or one with.
In the case of anticipation, what it does is that the suppliers can receive the payment before the date that is really required, thus assuming the interests and expenses. In other words, we would talk about paying for something before receiving it, but with the assurance that it will be received, of course.
When there is no anticipation, then it is that the payment of those products to the suppliers is going to be carried out according to the date of the invoice when it is due, that is, when the invoice must be paid, and not before.
Confirming with and without recourse
Another type of confirming that you have is that of with or without recourse. Namely, if there is a certainty from the providers that they will charge your invoice, whether the client pays or not (it would be without recourse); or if it is the suppliers who will be responsible for the non-payment if, when the due date arrives, the customer does not pay the invoice.
According to the customer's payment date
In this case, we are talking about a type of confirming based on the moment in which it is paid by the client. And in this case there may be several assumptions, such as that he does it before the due date of payment, that he does it on his due date, or even that he does it later, in this case running with the interest and expenses that it entails.
Banking or non-bank confirming
Finally, you have two different figures, the bank confirming and the non-bank one.
What is banking? It is where a bank provides the service. This is the most common since it is the one used in all the previous ways.
What is a non-bank one? Where who provides the service is not a bank. In this case, financial companies are operating but they are not banks.
The advantages it offers you
After knowing what confirming is, how it works and the types that exist, you may still be wondering if it is what is right for you. And yes we can say that It has several advantages, both for customers and suppliers. But what are these? We talk about them:
Advantages of confirming for customers
In principle, one of the first advantages that customers will have is, without a doubt, savings in payment administration costs. That is, you will not have a person who is in charge of managing the payments, because it is not necessary. In addition, by giving a secure collection option to providers, you will be giving them security and your brand will grow since it will mean that you are serious.
What's more, you avoid problems with payments, and that helps the relationship with suppliers to be better, because they know that they are going to charge and that nothing is going to happen that could affect it.
For providers
One of the advantages is increased liquidity, in addition to not having to make use of financing lines (and thus avoid future problems). In addition, they can have two options, either to anticipate the invoices, or to wait for the payment date.
The disadvantages of confirming
Now, just as we have told you about the advantages (and how good confirming is), we cannot avoid clarifying that not everything is good. There are some drawbacks that you should take into account when thinking about this form of payment.
And what problems can confirming give? As we have done with the advantages, we divide it below:
For clients
In the case of customers, betting on confirming makes other payment methods cannot be used. In addition, it is the customer himself who has to assume all responsibility and commitment for having decided to order the product.
For providers
Suppliers have a great "danger" with confirming because they are the ones who have to bear the cost of the advance and that, sometimes, especially in certain products, can be extremely expensive. What's more, It is no longer the one who says first to collect; it is the customer who gives the payment order, not them.
And, another drawback, is the fact that international payment operations, especially when operating in those in the area outside the euro, are not accepted.