The factoring technique is an effective financial solution to meet the cash requirements of a company. When the institution encounters cash worries as a result of late payment by its customers, factoring appears to be the best solution. Professional credit, it helps to optimize, manage and secure the cash flow of a company.
The principle of factoring
With the factoring or factoring technique , a company can entrust its commercial debts to a financial institution. This factoring company, also known as a factor, then endeavors to recover the debts by relaunching the debtors. In all cases, the company benefits from three services from the factoring company. The factoring facility finances its cash flow, manages the client item, and offers credit insurance that guarantees the collection of outstanding payments.
In order for the transfer of ownership of the receivables to be valid, the company and the factoring company must sign a factoring contract. This document sets out the terms of assignment of invoices.
In France, the approved factoring companies are grouped together within the ASF, or Association of Financial Companies.
How this short-term financing works
Factoring is a short-term financing method dedicated to professionals . In the first place, the firm is approaching a factoring firm which is in charge of evaluating the feasibility of factoring. If an agreement is signed, the company gives the financial institution a list of its customers. She also sends her contact details and SIRET numbers, as well as the amount of outstanding invoices to come.
The firm informs the factoring company of the situation, and the latter proceeds with the settlement of its receivables. The customers of the company then pay their debts to the factoring company once on the due date.
Who can benefit from factoring, and how?
The factoring technique is accessible for all companies with receivables in France or abroad, but with professional B2B customers (building sectors, IT services …).
In principle, a company can take advantage of the factoring technique when it has the receivables born and safe. But, the claims must above all be due. Customer invoices to be recovered must also concern private companies or public bodies. Invoices for individuals are not taken into account.
Before engaging in recovery, the factoring company must justify that the claims for the services correspond to the deliveries. This step allows him to avoid disputes once at maturity. A solvency study of the customers is also to make to gauge the risks to incur.
Factoring: which privileges?
Because of the benefits it brings, this method of professional financing proves to be very attractive for companies. Thanks to factoring, a company can return its cash quickly as soon as invoicing . It will no longer have to wait for invoices to expire or face the inconvenience of any delays or risk of unpaid bills.
Factoring also affects the administrative expenses related to the settlement of invoices, by lightening the business of customer reminders, tracking recoveries … This situation allows it to facilitate and secure financial management.
Factoring also appears as a sustainable short-term financing solution for a company. By releasing the client item, it greatly reduces the working capital requirements (WCR) of the company.
The cost of a factoring
The size of the firm and the type of factoring contract define the cost of factoring. But, different elements are taken into account to establish this cost.
The different types of factoring contracts
According to these needs, an institution can choose the type of factoring contract to sign. She has the choice on different types of contract:
- Factoring notified unmanaged (semi-confidential),
- Factoring without recourse,
- Reverse factoring or reverse factoring,
- Confidential factoring,
- Balance factoring.
The elements taken into account to evaluate the cost of factoring
- Factoring commission
The factoring commission refers to the prices of the services provided for in the factoring contract, namely: the management of the customer item, the collection and the guarantee. Some points serve as a basis for evaluating this commission:
- The number of debtors to take charge,
- The main risks that the factor will face,
- The solvency of the company.
This is the cash advance granted by the factor to the institution, which is generally estimated at 3%. It may, however, vary according to the amount and the period of recovery of the receivables