Discovering the Essential Deals for the Factoring

We recently wrote that the average period of payment of invoices is 79.4 days that 44% of SMEs have bills pending collection and that, of these, 11% say they will never charge a tenth of their sales. Unfortunately, this situation can bankrupt too many companies.

What is factoring?

Factoring consists of a financial operation through which a company transfers the invoices generated by its sales to a company (usually banks) that will be in charge of managing the collection. In return, the factoring company will offer the amount of the assigned invoices, minus a commission percentage. At the Apex capital corp’sfactring program you will be having the best deals now.

Let’s take an example. The company has made a sale to the company Luca and therefore sends an invoice with a maturity of 30 days for the amount of 10,000 euros. Through the signing of a contract, this gives it to the respective bank, who immediately gives 9,000 euros, 90% of the total amount of the invoice. Now the bank will have the collection rights and therefore the company must pay the bank 100% of the invoice directly. Thus, the bank will obtain 10,000 euros and, therefore, will have earned 1,000 euros.

Factoring modalities

There are two types of factoring depending on the coverage of default risk:

With recourse

In this case, the bank does not assume the risk of default and may act against the company transferring the invoices in case of default by the customer. The bank will carry out all extrajudicial and judicial measures to guarantee collection. However, in the event that it is impossible to collect, the bank will return the invoices to the ceding company and recover the amount advanced.

This modality is usually the most usual, unless the company is very large and with very good credit rating.

No recourse

Here the bank does take over the insolvency risk of the client, not being able to act against the ceding company if a default occurs. This supposes an increase in the cost of the operation, therefore the commission for the bank will be higher than in the previous modality.

Advantages of factoring

  1. Immediate liquidity

The clearest advantage is the provision of immediate liquidity. We have already seen that the average payment period between companies is almost 80 days, well above the legal term. However, it is difficult to resolve this situation since starting a claim procedure is not always an easy task.

Thanks to factoring, invoices can be charged at the same time they are issued. It is true that a commission will be applied and therefore the company will not charge 100% of the invoice. Therefore, the need for liquidity must be assessed, as well as the due dates of the invoice or the doubtful collection.

  1. No debts are generated

It is simply an exchange of collection rights between the transferor and the bank, no debts are generated. Thanks to this, if the company at a specific moment needs to request a loan, it can do so without factoring harming it, since it will have obtained the necessary liquidity without incurring debt.

  1. Outsource collection management

We could consider factoring as an external service to carry out collection procedures. This means that the company does not have to allocate any resources to this type of operations. And, therefore, you can devote all your efforts in producing and selling.

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