CFDs are complex financial instruments and carry a high level of risk due to leverage. A significant proportion of retail investors incur losses when trading leveraged products such as CFDs. You should carefully consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your capital.
If you’re wondering what confirming is, it’s a financial service in which a company delegates the management of payments to its suppliers to a bank. The bank is responsible for notifying suppliers that the payment is confirmed and offers them the option to collect it before the due date in exchange for a fee. It’s a financing tool for the entire supply chain.
Three parties are involved in this transaction: the contracting company, the bank, and the suppliers. Each derives a different benefit from the mechanism.
The company centralizes and manages its payments through the bank, improving cash flow control. The bank charges fees for managing the service and for advancing funds. The supplier receives payment confirmation and can choose to be paid on the agreed-upon date or to receive early payment at a discount.
To understand how confirming works in practice, it is helpful to know the two existing variants. The difference between them determines who assumes the risk of non-payment.
In non-recourse confirming, the bank assumes the risk of non-payment. If the contracting company fails to pay by the due date, the supplier does not have to return the advanced funds. The bank absorbs the loss. This method offers greater security to the supplier but comes at a higher cost.
In recourse confirming, the risk remains with the supplier. If the company fails to pay, the bank demands that the supplier repay the advance. The cost is lower than that of the non-recourse option, but the supplier’s protection is limited.
The process follows a sequence that the bank manages from start to finish.
The company signs up for the service. It agrees with the bank that the bank will manage payments to its suppliers.
The company submits the invoices. It informs the bank which invoices are due, to which suppliers, and by when.
The bank notifies the suppliers. It confirms that payment is guaranteed and offers the option of an advance payment.
The supplier decides. The supplier can receive payment on the original due date or request an advance payment at a discount.
The bank processes the payment on the due date and charges the corresponding fee to each party.
A company has an invoice for 10,000 EUR due to a supplier in 60 days. The supplier needs immediate liquidity and requests the advance payment. The bank advances 9,850 EUR (applying a 1.5% discount for the 60 days). The company pays the 10,000 EUR to the bank on the original due date. The supplier obtained immediate liquidity; the company maintained its payment terms.
Many companies and suppliers are unaware of the details of the mechanism. These mistakes are common.
Failing to verify whether the service is with or without recourse.
Ignoring the actual cost of the advance when comparing options.
Assuming that a confirmed payment is equivalent to a payment made.
The service solves specific problems in the business payment chain.
The company improves its relationship with suppliers by guaranteeing payments.
The supplier gains access to liquidity without resorting to its own loans.
The bank generates revenue by managing existing commercial cash flows.
Confirming is a banking service that manages payments to suppliers and offers advance payments. It can be with or without recourse, depending on who assumes the risk of non-payment. For the company, it improves cash flow; for the supplier, it improves liquidity.