Financing stock with supplier credit
Trading companies typically have few fixed assets on the balance sheet, little to no machinery and premises that are often rented. Inventories and, in particular, accounts receivable also determine the balance sheet and hence the financing requirement. If the purchasing is done within Europe, you can finance the supplies at least partly with supplier credit. If purchasing from the Far East or the US, for example, this will not be the case and you will have to pay for the purchase, at best, when the goods are delivered.
Financing at the bank
For financing trade receivables, the banker is the appropriate party. Under conditions, the house bank is often willing to finance the receivables for 50% or, at best, 70%. This always with a maximum amount they determine based on your company's financial rating. This is based on the latest final annual accounts. With healthy growth, this means your business is already running fast approaching the limit and comes the trade to stand still.
Financing with factoring companies
Specialised debtor financiers, the factoring companies, often go further in financing and are more willing to look to the future. As a result, they finance higher and naturally accompany the growth of the business. The quality of the receivables portfolio is then more important than the company's balance sheet in past years. They determine quality based on the spread of debtors, payment behaviour, things like disputes and also the amount of credit notes. If the quality of your portfolio is good, you will soon get higher financing than at the house bank. And that too, often with fewer securities and conditions.
Up to 90% higher funding
What many entrepreneurs do not realise is that when they insure their accounts receivable portfolio the funding is always higher, up to 90%. This makes it easier for your business to grow and seize the opportunities the market offers. With a well-spread debtor portfolio, the financier often does not even look at the limits per buyer, but only at the coverage on the total portfolio. An additional advantage is that the risk of non-payment by the buyers is covered and the credit insurer can give you timely warnings when a customer is in worse financial shape. In the unlikely event that a buyer's credit limit is too low, this gives you the opportunity to enforce better payment conditions. For a small percentage (0.15% to around 0.3%) of sales, your business is better funded and risks are reduced. It doesn't get much better!
More information
If you want to know whether credit insurance is right for your business, contact us without any obligation.
