Feel the Best With the Essential Options Now in Factoring Invoices

The majority of commercial enterprises grant payment terms to their customers. However, when the deadlines begin to lengthen, the company may find itself in cash trouble. However, it is possible to reduce or even bypass this deadline by selling its receivables to a factoring company. But what is factoring and how does it work? What are the different types of factoring and when should we use it?

What is factoring?

Factoring, also known as factoring, is an affordable financing technique for any type of company provided that it works with a clientele of companies. With the net 30 invoicing this is important.

When a company uses this technique, it sells its receivables to a specialized agency: the factoring company, also known as a factor. In exchange for this transfer, the company recovers immediately in return for the cash from receivables sold.

In practice, factoring makes it possible to recover funds immediately and without waiting for the payment deadline.

When to use factoring and how does it work?

The issuance of an invoice is synonymous with appearance of claim: it is immediately possible to appeal to a factoring company. The factoring process is divided into three stages:

  1. Creation and sale of debt

The company charges a service or a product to the customer. The claim related to this invoice is then transferred to the factor, according to the terms stipulated in the factoring contract. The factor sends the company a notice of purchase of debt.

  1. Payment of funds

Once the commissions and the holdback are collected, the factoring company settles the claim to the company (up to a certain limit: 80% on average).

  1. Finalization

The debt repurchased by the factor is paid, the latter then refunds to the company the holdbacks.

Which factoring to choose?

Depending on the cash flow requirements or the commercial policy of the company, the type of factoring varies.

 

Confidential factoring: the company uses a factoring company without its client being informed

Factoring notified but not managed: the company transfers its debt to the factoring company but nevertheless retains control over the collection. This solution, which is cheaper by around 20%, is preferred by companies that do not have any problem with recovery.

Subrogation (or factoring notified): unlike confidential factoring, the customer is here informed that he must pay the invoice to a factoring company.

Features and pricing

During a factoring request, the company and the factoring company sign a factoring contract. The latter sets the framework in which the company can sell its receivables. The contract generally specifies the “rate” of the factoring company, the retention of guarantee and its performance.

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