If a company needs money in the short term, factoring can be a suitable financial instrument.
In addition to immediate liquidity, factoring can also provide your company with protection against default (security).
Let factoring companies pre-finance invoices
Factoring gives you capital for the pre-financing of new customer orders.
In factoring, open receivables (invoices) are sold to factoring companies immediately after accounting. There is no long waiting time for incoming payments. The outstanding amount will be paid out immediately. The biller enjoys many advantages when using factoring. The equity ratio is increased and the credit rating improves (better rating with the house bank). A lengthy credit check of the borrower is not necessary because the creditworthiness of the customer who receives the claim is decisive. If a company has a good credit rating, the chance of cheap loans increases. To get the optimal solution, there are different types of factoring.
Which factoring variant is the right one depends on your needs (possible application).
The following points are important for the right factoring solution:
- What is your liquidity requirement?
- What is the payment behavior of your customers?
- Who should take over the dunning and bad debt protection (del credere)?
- Are the debtors based abroad (export factoring)?
- Should the purchase of receivables take place in a concealed manner (the customer is not informed of the fact that the factor service is activated)?
Factoring is used by medium-sized companies in many industries such as production, services, trade, handicrafts.
The different types of factoring
The main factoring options are; Real-fake factoring, full service factoring, open and silent factoring and in-house factoring. Factoring companies specialize in the various types of factoring financing.
In real factoring, the factoring service provider takes over the financing, the risk of bad debts and the service provider function. Protection against bad debts does not apply to fake factoring for the factoring customer. For example, the factoring company Finiata provides “fake factoring”. With this factoring form, your customers learn nothing about invoice sales. The full service factoring includes default protection, as well as the collection and dunning of overdue receivables. If you choose open factoring, the biller (customer) is informed of the assignment of claims (sale of the invoice) to the factor. In the case of silent factoring, the assignment of claims is not communicated to the factor. In-house factoring is used by large companies that operate the dunning process themselves. The company receives more favorable conditions from the factor company.
Many companies use factoring because of the fast processing as uncomplicated additional financing and as an instrument of financial planning. Factoring also helps to improve the company’s creditworthiness. To find the right factoring provider for your company, a factoring provider comparison is recommended. Furthermore, your administration and accounting will be relieved. Factoring is an effective financing instrument when it comes to purchasing finance, commercial loans and creating quick liquidity and thus competitiveness. Short and quick decision-making processes shorten the waiting time for payment of the claims.