Never heard of factoring before or just want to know more about it? No problem, we are happy to explain it to you. Because what exactly is factoring, how does factoring at Factris work, what types of factoring are there and for whom is factoring actually suitable? You can read it in this blog!
What does factoring mean?
When we want to look at what factoring exactly is, it is useful to first take a closer look at the definition of the word. This definition is: the business activity of selling debtors to a financial institution at a discount to obtain cash. In other terms, factoring revolves around selling unpaid invoices to a factor (in this case Factris), which then takes on the payment of the invoice and the risk of collecting payment from the customer. But why would you do this and how exactly does factoring work in practice?
What is factoring?
Factoring is becoming increasingly popular among entrepreneurs as an alternative method of financing. And that is not surprising, as factoring is the way to receive money for a sent, unpaid invoice, without having to take into account a payment term. By selling the invoice to the factor, you as an entrepreneur no longer have to worry about collecting the invoice and you can be sure that you will have the relevant amount on time. It makes factoring the ideal solution for many businesses in different forms. For instance, factoring is ideally suited for small businesses and freelancers who need to bridge the gap between when the work is completed and when they get paid for it.
What is factoring at Factris?
The concept of factoring at Factris is very simple. In practice, it means that you send a copy of every invoice sent to Factris. Factris pays the invoice to you, taking over the payment term. This money is then sent to your bank account and you can immediately use it for your business.
This can be incredibly convenient because instead of having to wait 30 to 90 days for customers to pay their invoices, you can get this money from a factoring company in a matter of days.
It is important to note that as a factoring company, Factris will charge a fee for the service. From then on, it is up to the factoring company to collect the outstanding invoices so you don’t have to worry about it anymore.
What is factoring for SMEs?
Factoring, as mentioned, is suitable for businesses of different sizes and shapes. Factris’ SME factoring is a form of factoring specifically aimed at SMEs. For many SMEs, factoring is the perfect opportunity to receive money at short notice for one or more invoices sent. With SME factoring, you therefore have the opportunity to immediately invest further in, for example, personnel, equipment or other business matters, in order to allow your small or medium-sized business to continue to grow.
Different types of factoring
A total of three forms of factoring can be distinguished: traditional factoring, American factoring and reverse factoring.
What is traditional factoring?
Traditional factoring is the original form of factoring. Here, all outstanding invoices are bought by the factor, at a small percentage of the total value. When the invoices are sold, the factor becomes the owner of the invoices and is responsible for collecting the original amount from the customer.
What is American factoring?
American factoring is the form of factoring most commonly encountered today. This form of factoring is similar to traditional factoring, but is more flexible in the number of invoices you sell to the factor. This is because whereas with traditional factoring you sell all outstanding invoices, with American factoring you have the choice here whether to sell all invoices or only part of them.
What is reverse factoring?
The third form of factoring is reverse factoring. This form of factoring is used by companies that are owed money by other companies (so-called ‘buyers’). This buyer hereby agrees to pay for the services and/or goods received within a certain period of time, after which the factor pays the amount immediately. In doing so, the factor charges the runner a fee.