Alternative forms of financing, like factoring, have never been more important for your business. Learn how factoring works for your SME.
“There’s nothing new under the sun,” states an ancient proverb. In other words, just because it’s new to you, don’t think it’s new altogether.
This certainly applies to factoring: despite the fact that many are just discovering its many advantages, it’s by no means new. In fact, factoring (or invoice financing as it’s also known) is well known to many businesses.
And in these tumultuous times, it has never been more important for SMEs to turn to factoring to finance their SME. Let’s have a closer look at how factoring works to answer any questions surrounding this alternative form of financing.
Instead of a few months, a few days
Factoring provides near-instant capital, providing a full range of services.
Does waiting several months to receive payment sound good for your business? We didn’t think so either. And that’s the first of the many advantages that factoring can bring to your business. How?
When a company invoices for work performed or for its products, it usually may have to wait several months or longer for payment from the buyer. But when using factoring, they can receive up to 95 percent of the invoice amount within a couple of days and the rest when the buyer pays the invoice.
Do you see the advantages this presents for your business? Instead of waiting months for that capital, you can factor your unpaid invoices and immediately use that money for activities and development to help you grow.
A significant focus on risk assessment
Factoring assesses the solvency of customers and reacts to these changes.
Solvency, or ability to pay one’s debts, can play a huge part in the success of your business—both your creditworthiness and your buyers. Factris’ Chief Risk Officer, Marcel Meijer, explains what solvency means for you. “Each factoring transaction is evaluated from two perspectives: The customer (you) and the buyer (your unpaying client). The level of insolvency risk of both allows us to judge the overall risk of the transaction. We help customers choose the best buyers—solvent, stable buyers that promote success for your business, thus cultivating long-term partnerships and shared growth.
And Factris is undoubtedly a cut above the rest, with our informative internal-rating system for clients and their buyers. Our roughly five years of financing experience, insurance database, credit bureaus, and public information—all of which helps to identify threats and ensure sustainable growth for your business”.
Protection against insolvent buyers
Factoring provides trade credit insurance.
This service directly protects you from the risk of customer insolvency. Just how important this service is for you is further explained by Mr. Meijer, “This means that after using this service, your business is no longer subject to a recourse requirement when the debts left by an insolvent buyer have to be paid to the customer himself. In other words, you’re not stuck with any hidden debts in the end, even if your client still isn’t paying their invoice.
The customer, having received financing from the factoring company, is assured that all funds belong to him. And the creditor (factoring company) will not have the right to request a refund. In the event of the buyer’s insolvency, the entire debt-management process will be administered by the insurance company. In case of failure to recover the money from the unpaying buyer, the insurer will reimburse a part of the financed account.”
All of this gives you even more reason to rest easy, knowing you have the capital you deserve—no matter what is going on with your unpaid invoices.
Debt collection doesn’t have to be your concern
Factoring provides debt collection services.
This means that in the event of late payment of funded invoices, you don’t have to worry about recovering funds from the buyer.
“We aim to help the customer get their money back faster, and that’s why we have developed a complete system for this. It includes automated notifications, additional contacts if necessary, an explanation of the reasons for delays and calls for debt repayment. This system shortens the money cycle and reduces financing costs for customers.” says Mr. Meijer.
So when your SME makes the wise decision to insure his accounts against the buyer’s insolvency risk, you can rest assured knowing the debt is recovered from the buyer by the insurance company.
Personal counseling and advice
Factoring clients receive a personal manager who becomes the client’s financial advisor and intermediary, representing the client’s interests.
For companies wishing to contact a factoring company, Factris specialists seek the answers to these crucial questions to help you make the best decisions for your business:
- What benefits will “faster” bring money to your company?
- Will they allow you to balance cash flows, prepare for growth, provide better quality goods or services, meet creditors’ requirements, and settle accounts with suppliers and employees on time?
- Does the profit margin allow you to use the factoring service?
Answers to these questions help us to confidently know the objectives and to make it easier for you to obtain the necessary funding.
So even though factoring may be new to you, it’s certainly not new to us. Factoring with Factris gives your SME a huge advantage by providing same day cash flow, credit insurance, debt collection, and even a personal manager—all to help you not just survive, but thrive during these uncertain times.