A healthy cash flow is vital for any business. This can sometimes be difficult, as you have no control over when your customers pay your invoices. Invoices that remain outstanding for a long time can pose a problem for the continuity of an organisation. Factoring can help with this, giving you more scope to run your business.
Xolv provides independent support to help you find a suitable financing partner and prepare your financing application.
If you opt for factoring as a form of financing, the factoring company will take over your invoice and pay up to 90% of the original invoice amount. This usually happens within 24 hours of receiving the request. Because the invoice is taken over, they also assume the risk of non-payment. Once your customer has paid the full invoice, you will also receive the remaining amount in your account. In addition to invoices, factoring can also be used for purchase and inventory financing, giving companies extra room to grow. Read more about stock financing via factoring.
Find out more about the benefits of factoring. As well as these benefits, factoring is often an even greater boon for SMEs. Businesses gain immediate access to cash without having to rely on bank financing. Would you like to find out more? Read more about factoring for SMEs.
Not every claim is eligible for financing. In addition, agreements are required regarding credit management and the possible transfer of credit risk. There are also misconceptions about factoring. In this article on the 4 disadvantages of factoring you will read what is often misunderstood and how this is in practice. Would you like to know what types of factoring are available? These are the 5 main forms of factoring.
The process outlined below shows how factoring can work. The exact procedure depends on the chosen type of factoring and the terms agreed.
You process your orders exactly as you usually do. When an order comes in, you focus on delivering the product or service. Nothing changes until you send the invoice.
When you draw up the invoice, please ensure that the payment details refer to the factoring company to ensure the payment is processed correctly. You should then send the invoice to your customer and a copy to the factoring company. This process is usually fully automated.
Once the invoice has been received, the amount is often transferred to your account within 24 hours. This may, for example, be around 90% of the invoiced amount.
Depending on the structure you choose, the company will handle the debt management and ensure that matters are settled satisfactorily with your customer. Would you like to know what’s involved? Then take a look at our debtor management page for a complete overview. For higher turnovers, it is also possible to keep debtor management in your own hands.
Has the customer paid? Then the remaining amount, minus the factoring fee, will be transferred to your account. Should the company unexpectedly go bankrupt or fail to pay? No worries, the factoring company bears the credit risk, so you are assured of your money and your working capital remains protected.
Factoring costs often consist of three components:
Commission: fee for the factoring company's work.
Interest: on the amount advanced.
Credit insurance: a premium that covers the risk of non-payment.
The financing rate depends on the business turnover. With a lower turnover, financing is a bit more expensive than regular bank financing. At higher turnover, factoring rates are similar or sometimes even a bit lower. For a more comprehensive overview read this article where we the costs of factoring at a glance move.
With factoring, you do not take out a loan and therefore do not take on debt. Factoring is often seen as a form of pre-financing, but strictly speaking it is not. In fact, you sell the value of your invoices to a factoring company. By doing so, you quickly receive a large portion of the invoice amount. Depending on the chosen form of factoring, you can also outsource invoicing and collecting payments to the factoring company. Curious about the different forms of factoring? Read here about the 5 main forms of factoring.
Factoring is also known as accounts receivable financing and is a form of business financing whereby you pledge or sell invoices to a factoring company. You receive a portion of the amount immediately, whilst they assume the risk and, in many cases, also take over the management of your accounts receivable. This means you have access to your money more quickly without taking out an additional loan.
A factoring company buys your invoices and pays out an agreed percentage within a short period of time. This is done on the basis of a factoring agreement, which includes agreements on advance payments and a possible commitment fee, the fee for making credit available. This working method is typical of the broader factoring industry, which supports entrepreneurs in improving their liquidity and cash flow.
The costs you pay consist of a commission for the factoring company’s services, interest on the amount advanced and, in most cases, a premium for credit insurance. The financing rate depends on the company’s turnover. Where turnover is lower, the financing is slightly more expensive than standard bank financing. Where turnover is higher, factoring rates are comparable or sometimes even slightly lower.
Under a factoring agreement, you transfer your invoices to a factoring company, which usually pays out a portion of the amount within 24 hours. The invoice forms the basis of the transaction. The contract may include a commitment fee: a charge for making credit available. Such an agreement forms part of a broader factoring arrangement, in which it is essential to have a clear understanding of how the factoring company operates.
With invoice financing (or debt factoring), you pledge or sell outstanding invoices to a financier in order to gain immediate access to liquidity. This is often done through a traditional form of factoring, whereby part of the accounts receivable management is taken over. With purchase financing, on the other hand, a third party finances your purchase costs before the invoice is even issued – a solution for supplier payments rather than customer invoices.
A factoring company is a financial institution that takes over your invoices, pre-finances them and often also takes care of credit management.
We have years of experience in financing and protecting working capital. We will help you find the right partners that fit your situation perfectly. We are 100% independent and have contacts with almost all leading parties in the market. This is how we find the best possible factoring deal to suit your situation. Together with you, we write a concise financing application to increase the chances of acceptance. In short: for tailor-made financing and maximising your working capital funding, you have come to the right place! Want to know more?
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