The main idea of the del credere function is as follows: a factor who has previously verified the debtor’s capability to settle the debt, assumes the solvency risk of the transferred claim, i.e. if the debtor is insolvent or avoids payment, the factor may not make a reverse claim against the client, but the client is liable to the factor only in respect of the authenticity of the claim (see: the German Civil Law [Bürgerliches Gesetzbuch (hereinafter BGB)] Para. 437 Sect. 1, the Civil Law of Latvia (hereinafter CL), Art. 1810 ). This factoring function also gives an opportunity to small companies to ensure large supplies based on payment by instalments without running the risk that in case the debtor becomes insolvent, the company will suffer substantial losses that might lead to bankruptcy.

1. Classification According to the Existence of the del credere Function

The research literature distinguishes between real and false factoring in the classification of different forms of factoring. If the factor assumes all three functions (loan, service and del credere functions), this is known as real or complete factoring also called non-recourse or standard factoring ). However, in false factoring (also called “with recourse” or reverse factoring ) the del credere function is missing: here the client retains the solvency risk against which the factor may make a reverse claim in case it proves impossible to collect the receivables from the debtor. This means that in false factoring the client is liable both for the authenticity and the security of the claim (cf. CL, Art. 1810). The factor’s only risk is the possible insolvency of the client in the case of a reverse claim. The advantage of false factoring is the considerably cheaper price that the company has to pay (in the amount of del credere commission).