A healthy cash flow is very important for any business. This is sometimes difficult, as you have no control over when your clients pay their bills. Long-term outstanding bills can be problematic for the continuity of an organisation. Factoring solves this problem, allowing you to do business carefree. Factoring is a form of accounts receivable financing and, for larger companies, can be supplemented by purchasing and stock financing.
If you choose this form of financing, you let the factoring company pay your invoice directly. The company takes over your invoice and pays out up to a maximum of 90% of the original invoice amount. This usually happens within 24 hours of receiving the application. Since the invoice is taken over, they also take over the risk of non-payment. If your customer has paid the full invoice, you will also receive the remaining amount in your account.
What are the benefits of factoring financing and who is it for? A key advantage is that the entrepreneur does not have to wait for his money until the client has paid. This improves the company's liquidity position. In addition, the financing automatically grows with the growth of the business and a factoring company provides higher financing than regular bank financing. An often overlooked advantage is that the average payment period of invoices becomes shorter due to the factoring company's interference.
There are some misconceptions, things that are often seen as the 4 disadvantages of factoring, read us article on this topic to get a better idea about factoring. Want to know what forms of factoring there are? These are the 5 main forms of factoring.
The fees you pay consist of a commission for the factoring company's work, interest on the loan amount and, in most cases, a premium for credit insurance as well. The financing rate depends on the business turnover. With lower turnover, the financing is a bit more expensive than regular bank financing. At higher turnover, factoring rates are similar or sometimes even a bit lower.
With factoring, you do not take out a loan and therefore do not take on debt. Factoring is often seen as a form of pre-financing, but strictly speaking it is not. In fact, you sell the value of your invoices to a factoring company. By doing so, you quickly receive a large portion of the invoice amount. Depending on the chosen form of factoring, you can also outsource invoicing and collecting payments to the factoring company. Curious about the different forms of factoring? Read here about the 5 main forms of factoring.
The process to start factoring is relatively simple, but important for a flawless process.
You handle your requests exactly as you are used to. When an order comes in, you focus on delivering the product or service. Until you send the invoice, nothing changes.
When you prepare the invoice, make sure the payment details refer to the factoring company for proper payment processing. Then send the invoice to your customer and a copy to the factoring company. This is usually fully automated.
After receiving the invoice, the amount is often transferred to your account after 24 hours. This is often around 90% of the invoiced amount.
The company handles accounts receivable management and ensures a good settlement with your customer. Wondering what all this involves? Then take a look at our debtor management page for a complete overview. For higher turnovers, it is also possible to keep debtor management in your own hands.
Has the customer paid? Then the remaining amount, minus the factoring fee, will be transferred to your account. Should the company unexpectedly go bankrupt or fail to pay? No worries, the factoring company bears the credit risk, so you are assured of your money and your working capital remains protected.
We have years of experience in financing and protecting working capital. We will help you find the right partners that fit your situation perfectly. We are 100% independent and have contacts with almost all leading parties in the market. This is how we find the best possible factoring deal to suit your situation. Together with you, we write a concise financing application to increase the chances of acceptance. In short: for tailor-made financing and maximising your working capital funding, you have come to the right place! Want to know more?
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