True Options for the Better Factoring Now for You

Factoring is a method of financing and collecting receivables that can be used by a company and involves entrusting a third party organization (a specialized credit institution) with the management of its receivables in order to obtain, among other benefits, early repayment.

In concrete terms, a company that chooses to opt for factoring then decides to entrust all the administrative management of the receivables to a factoring company and thus avoids all the necessary steps to obtain the repayment of the claims made with other companies (the factoring cannot be used for individual claims). In the past, the use of factoring was synonymous with poor financial health for a company, reflecting the imperative search for new cash. Today, this method is more like a solution for outsourcing administrative tasks. With the factoring companies this is important.

Factoring is a contract by which a specialized credit institution, known as a factor, buys the receivables held by a supplier, called a seller, on its customers (French or foreign) called buyers or service recipients for a fee.

Factoring presents the user with three main advantages:

  • It is an efficient recovery process since the factor relieves the seller of the concern for the management of the receivables and the cashing of the sums due,
  • It is a technique of mobilization of the post and whatever the method of settlement agreed with the buyer,
  • It is a guarantee of good end since the factor agrees to pay the seller the invoices he has issued. The risk of insolvency of the buyer and the risk of non-payment at maturity are borne by the factor, unless the supplier is in default.

The remuneration of the factor comprises two elements -. Factoring commission calculated on the amount of receivables transferred and interest expense calculated pro rata temporis, which represents the cost of financing.

  • The degradation of the customer relationship is another limit of factoring: the factor dealing with this aspect will generally be less “soft” and put less forms in its exchanges with the customer. Moreover, these same customers may feel left out if they are informed that the relationship they could maintain with their supplier will now be provided by a factor.

The risk of the dehumanization of the customer relationship must therefore be taken into account (the use of confidential or semi-confidential factoring may be a good compromise), since a buyer who feels “abandoned” may end up having enough and ultimately turn to competition.

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