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The Essential factoring Options for You Now

Thursday, July 5th, 2018

Factoring is the assumption of a client’s receivables (the adherent) by a factoring company (the factor).

Simultaneously with the issue of invoices, the member transfers them to the factor (provided that he has previously approved the debtor) who then takes charge of:

  • to collect the debts;
  • to guarantee the good end, even in case of momentary or permanent failure of the debtor;
  • to pay, in advance, all or part of the amount of the transferred claims.

Description:

The factor guarantees the good end of the client item, since it is responsible for the recovery, recovery and takes the risk of nonpayment of the debtor. In addition, the factor may prepay all or part of the receivables transferred to it.

The mechanism of factoring schematized

The factoring technique differs from “conventional” credit insurance by taking charge of the entire management of the invoice as soon as the debt is handed over, whereas credit insurance only intervenes in the event of default.

The debtor

After the lapse of a waiting period, and only reimburses a part called “quota”, of the doubtful debt. The net 30 invoicing makes it easy.

In practice, the core business of factoring companies has grown rapidly and now consists of three separate trades. Factoring is both a collection process, a risk guarantee technique and, possibly, a means of financing receivables.

Simultaneously with the issue of invoices, the member transfers them to the factor (provided that he has previously approved the debtor) who then takes charge of:

  • To collect the debts;
  • To guarantee the good end, even in case of momentary or permanent failure of the debtor;
  • To pay, in advance, all or part of the amount of the transferred claims.

The remuneration of the factor has two components: the factoring commission and the financial expenses, also called financing commission, deducted from the advances made. The former remunerates the service part (accounts receivable management, debt collection) and the secured part against unpaid bills. Their rates vary from one factor to another, depending on the contracts, the turnover, the number of customers and the risk of default. Financial expenses are based on the company and the guarantees given. They pay the credit granted by the factor that pays before maturity.

On receipt of a draft contract, do not be immediately put off by a cost that you deem excessive, in fact, not only will the factor take care of a number of tasks that you will not have to perform any more convert fixed costs into variable costs.

Moreover, the possibilities of cash offered by the factor, can allow you to obtain a discount for cash payment, to buy a “lot”, to take a market with high margin but with long payment …

The interest of factoring

Factoring is often described as the best solution for a business owner to devote himself fully to his job.

Indeed by outsourcing the functions “unproductive” it becomes totally operational with complete freedom of mind knowing:

  • its clients selected and monitored,
  • its rapid financing assured, without epic negotiations with the banker, in case of sudden, seasonal or linear growth, with no other obligation than the approval of its customers by the factor,
  • Its cash flow is improved by the rotation of the receivables (DOS) and at the shelter of definition or debit at maturity.