This page allows you to access answers to the most frequently questions asked by companies or investment funds. It is regularly updated.
Factoring is a financing technique that allows a company to obtain payment of its invoices before their due date. The company transfers ownership of its invoices to a factor, which proceeds to their immediate payment. When the invoices are due, the factoring company receives the payments from the customers.
Factoring is exclusively for B2B companies. That is to say, companies invoicing their services to other companies or public institutions.
This is an excellent way of financing your business and speeding up the payment of your first invoices.
Factoring makes it possible to finance a company’s activity even if it is going through difficulties: amicable or collective procedures, observation period or takeover at the court.
Factoring is not only used by companies in difficulty, but large companies are also handing over their accounts receivable to focus on their core business and sustainability. In addition, companies in very good health also use factoring to outsource dunning processes as well as guarantees and collection.
In recent years, factoring has even become one of the most cost effective tools for financing working capital.
Factoring and securitisation are two financing techniques that are comparable in their approach. The players, the countries of origin, the risk calculations or the legal frameworks for the transfer of receivables can differ between both mechanisms.
Many of the tasks related to the management of a factoring contract can be automated: identification and monitoring of customer risks, file generation, flow analysis and contract performance tools. To manage a factoring contract properly, you need to know how to analyse your customer accounts in real time.
Factoring impacts several departments of a company, starting with Finance and in particular Credit Management and Cash Management. It also impacts the Sales and Marketing, Legal and IT departments.
Credit Management, if it is not already doing so, will have to integrate credit insurance into its management processes, and will have to communicate regularly with the Cash Management department on this subject. It will also have to adapt its reporting to the factoring requirements.
Cash Management will no longer manage only its own cash but also that of the factor. The sales department will need to integrate changes in its invoicing methods and follow-up of service receipts. Commerce will have to integrate a cash culture into its processes.
The legal department will look at the terms and conditions of sale to make them compatible with the assignment of receivables.
The IT department will deal with all data exchange issues.
Factoring is aimed at corporate groups, companies, craftsmen, shopkeepers, associations, liberal professions and micro-entrepreneurs providing services or products to other companies (B2B).Les entreprises de tous secteurs et de toutes tailles sont éligibles.
Of all the operational financing techniques, factoring is the most cost effictive for a company.
Factoring is said to be “deconsolidating” when the risk of non-payment associated with the assigned invoices is totally and irrevocably transferred to the factoring company. As soon as this risk is transferred to the factor, the financing that the company receives can be considered as an irrevocable payment. The accounts receivable are therefore balanced. The company has an improved cash flow without any debt in return.
A recourse factoring contract is said to be “with recourse” when it gives the factoring company the possibility to return unpaid invoices to the assigning company. The “recourse” to the assigning company occurs when the assigning company is asked to buy back previously assigned invoices.
A non-recourse factoring contract states that it is impossible to return an invoice.
A syndicated factoring contract ties several factoring companies to the same customer receivable. Syndication makes it possible to finance important lines that a single factor would not accept to bear alone. Syndicated factoring is sometimes implemented at the request of the transferring company which wants to diversify its financing sources. The company assigns all its accounts receivable to a factor, called “agent” of the syndication, which in turn transfers a portion to one or several factors, called “participants”. This technique spreads the risk.
A factor or factoring company is a financial institution specialised in factoring transactions. Most factoring companies are subsidiaries of banks.
The major banking groups all have a factoring subsidiary or department. On the European level: Santander, Caixa, BBVA, Banco Intessa, UniCredit, Deutsche Factoring, Kommerzbank, CofaceFinanz, Danske Bank, ABS Factoring, HSBC, etc.