What is Factoring?
What does liquidity planning have to do with factoring?
Liquidity planning plays a central role in corporate planning. For this reason, many companies increase their own liquidity by taking advantage of outstanding invoices and providing additional cash flow with the help of factoring. This form of liquidity management is characterized primarily by the fact that companies sell their outstanding receivables from services and products to factor companies. As a rule, long-term cooperation with these factor companies is generally sought.
Who is factoring useful for?
In this way, the factoring provides for a permanent increase in the solvency of a company. It is therefore
particularly suitable for small and medium enterprises and represents a particularly flexible financing
option in liquidity management. Although factor companies also often provide the skills of a debt collection
agency, factoring is not to be understood as a collection performance.
What is factoring?
Factoring is mainly used for improving cash flow used within a company. This concept provides a huge
relief, particularly for small and medium businesses. Frequently, these companies have sufficient sales in
principle, but sometimes still fall into financial difficulties. This comes primarily from the fact that,
even with legitimate claims against a cash customer, a company often has to wait more than 30 days to
settle the claim.
In many cases, this enormous delay already has a negative effect on the solvency of small and medium-sized companies. Additionally, there is a lack of payment discipline for some customers and a surprising reduction in lines of credit. There is also the possibility of an increase in operating costs, which may result in the failure of a company's liquidity management. For this reason, alternative sources of funding are often used short-term to provide for a higher liquidity within the company. In this way, liquidity management is improved and restored with its own solvency.
What are the advantages and disadvantages for my company if i use traditional factoring?
Advantages of Factoring
The usage of factoring improves:
- the liquidity
- Various online providers (for example in the factoring-alternative Advanon) transfer the financed amount to your account a few hours after submitting the invoice.
This means that the liquidity of your company is no longer blocked in outstanding accounts receivables and can be used immediately for example for wage payments.
- the equity ratio
- In this way, the factoring provides for a permanent increase in the solvency of a company. It is therefore particularly suitable for small and medium enterprises and represents a particularly flexible financing option in liquidity management.
- the company's growth
- The use of a factor company not only bridges financial problems, but is also used mainly for growth purposes. Factoring is a relatively risk-free way for companies to invest in their own business growth.
- protection against bad debts
- If delinquencies by default on the part of the customers are not enforceable, the loss is due to the bad debts of the factor company. The selling company then benefits and customer insolvency is protected against financial losses.
- the fixed costs
- Dunning and Accounts Receivable require personnel. The time consumed in credit management resources can result in high fixed costs. Factoring the entire dunning is moved to the jurisdiction of the factor company, saving the selling factor takers personnel costs, time, resources, and fixed costs in the long term.
Which form of factoring fits best to my company?
- Open factoring
- The end customer or debtor will be informed about the factoring.
- Silent factoring or prefinancing of invoices
- The end customer or debtor will not be informed about the factoring.
- Real factoring
- Beim echten Factoring übernimmt der Factor das Risiko für den Fall, dass der Debitor die Forderungen nicht bezahlen kann.
- Unreal factoring
- The factor does not take over the risk of a payment default. This means, that with unreal factoring, the financed sum must be fully refunded by the company, even if the invoice is not paid by the end customer (debtor).
- Full service factoring
- This classic factoring uses mainly SMEs: Financing, disaster protection, and complete accounts receivable management relieve the vendor completely.
- Maturity factoring
- Furthermore, a so-called maturity factoring is also partly offered. Under this, the factor merely takes over the debt collection matters. In addition, this form of factoring provides the amount due only after the buyer's payment. Thus, the financing function is completely eliminated.
- Inhouse factoring
- Here, the dunning remains fully in the selling firm. The factor is absolutely discreet in this case. The factor advances only when the third reminder was unsuccessful. However, the selling company continues to enjoy full credit protection.
Does your company have outstanding customer invoices? Take advantage of the numerous benefits offered through our factoring alternative. Schedule a personal consultation with our dedicated staff today.
Does your company have outstanding customer invoices? Take advantage of the numerous benefits offered through our factoring alternative. Schedule a personal consultation with our dedicated staff today.