postheadericon Greatest Opportunities for the Proper Factoring

Factoring is the continuous purchase or sale of short-term receivables from deliveries of goods and services to commercial customers. The sale of such receivables to a factoring institute offers a number of advantages to small and medium-sized enterprises, as is the case for no second financing instrument. Let us know what is factoring now.

The Nature of the Company

The company, which sells its receivables under a factoring agreement, immediately receives the liquidity it needs to pay its suppliers using discounts or rebates. The financing of the turnover takes place immediately, just-in-time. As the company’s sales increase, so does the liquidity.

  • Before concluding the contract, the factor reviewed the creditworthiness of the customers of its customers and set a limit for each customer up to which future promotions would be purchased.
  • The factoring customer delivers the agreed goods or services and informs his customers that he has sold the receivables to a factor and that the invoice amount has to be paid to them. He sends the invoices to the factor by post or online as a file.
  • The company receives on average 80% of the invoice amount incl. VAT. The remaining amount, also known as the blocked amount, is initially retained to compensate for any discounts, other discounts or any deficiencies. When paying the customer to the factor, the payment to the entrepreneur (= factoring customer) will be made immediately.

At the same time, the factoring guarantees the entrepreneur his claims completely against default. Individual or value adjustments can thus be avoided. This has a positive effect on the corporate rating of the financial institutions.

The Right Purchase

With the purchase of outstanding receivables, the factoring institute also takes over debtor management. For the company this means a reduction in the accounts receivable area as well as in dunning and collection.

The Money

A possible financing alternative for you as a young entrepreneur is factoring. However, your current delivery requirements must be at least 150,000 dollars. The factor company pays you about 80 percent immediately.

In factoring, you transfer part of your customer receivables to a factoring company (the factor) and immediately receive part (approximately 80 percent) of the invoice amount. You will receive the balance if your customer has paid to the factoring company. Of course, this financial instrument is not free.

From the amount to be paid, the factor deducts interest for the advance financing of claims (usually bank- standard loan interest) and an additional factoringfee. This fee depends on the amount of the factoring amount, the number of assigned claims and the supplier. This is usually 0.2 to 1.5 percent of gross sales.

Often, the factor takes over a number of other services, such as dunning and collection, invoicing and invoicing, accounts receivable, etc.

Factoring species

You can distinguish two types of factoring: real and spurious factoring. With genuine factoring, you will always be paid the invoice amount, even if your customer does not pay. In the case of bogus factoring, the factor only assumes collection duties, but no risk in the event of default.You can also choose between open or silent factoring. With open factoring, your customer is informed of the assignment of claims, not with silent factoring.

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