Fine and Easy factoring of receivables for Your Use

Factoring companies allow you to improve your cash flow by selling your receivables.Factoring is an increasingly used financial solution.

In the grip of cash worries, are you tired of having your banker refuse your overdraft or bill discount requests ? Factoring may be the solution to your problems.By signing a contract with a specialized credit institution, called “factor”, you definitively assign your receivables. Quick to set up (payment is made 48 hours after the assignment of invoices), much more flexible than banking solutions, factoring is on the rise. In here, total transactions increased from 128.3 billion dollars in 2009 to 153.3 billion in 2010, an increase of 19.4% year-on-year. For the factoring of receivables this is a very important now.

Three services offered

Factoring companies offer three services that you can combine according to your needs. First, “by buying back their trade receivables, the factors allow companies with little cash to create liquidity,” says Thierry Duval, president of Duval Consulting, a firm specializing in the editing of factoring files. In addition to this financing, the factoring companies offer the management of the customer account, from the collection process to collection, as well as the guarantee against the risk of unpaid bills through credit insurance.

“Confidential factoring accounts for nearly 60% of the market.”

“Companies that already have good structures recovery or who prefer to keep this confidential arrangements are not going to use that funding, says Thierry Duval. This is especially true of large companies, from EUR 10 million annual sales.” This confidential factoring represents 60% of the market in terms of volume of operation.

A significant cost

For cash flow purposes, the factor determines a financing commission based in particular on risk taking. “It is calculated according to the rate (interbank rate defined between banks with the best signature for the remuneration of deposits in the Euro zone, Ed) associated with base points”, explains Thierry Duval. This interest rate, which can be up to 4% depending on the volume, is applied to the amount financed, during the period of advance of the funds.

With regard to collection and credit insurance, many elements are taken into account in the calculation of the commission: from the volume and the quality of the customers ceded to the financial situation of your company.” This factoring cost is around 1.5% for SMEs and can reach 0.1% for the largest companies.

The choice of the factor

“80% of the market is held by factors that belong to banking groups,” said Thierry Duval. For recovery activities as well as for financing activities, it may be wise to use a specialized factor in your business. More aware of the sector’s practices, he will be able to better judge the reality of the risks, of the functioning of the environment and will be able to make you benefit from a better adapted offer.