The Essence of Factoring Companies for the Companies

One of the most modern and at the same time most recent collection strategies is formed today by factoring. Many companies are still very skeptical about factoring, while others have already discovered the benefits of this strategy. Factoring is always based on a so-called three-person relationship. It also has some core features and side effects.

Factoring involves the purchase of invoices from a company to a customer. For this, the company receives an immediate advance payment, which includes at least 80% of the total invoice amount. This allows the company to secure immediatecash inflow. Thus, of course, the room for maneuver of a company grows considerably. Furthermore, the factoring customers are under the protection by taking over the bill according to the law. As a result, the factoringcustomer is 100 percent protected against bad debts. The use of the factor company is essential there.

What are the prerequisites for factoring?

Each company determines the prerequisites individually for itself, whereby the sector as a target group is crucial, but also the market affiliation, as well as the size of the assigned companies. In the following, we would like to briefly mention some general requirements in order to provide a first insight:

The relinquishing company should:

  • Exclusively commercial customers
  • Neither assigned receivables have other rights of third parties have held
  • In terms of sales and sales of goods meet the specifications
  • At least 250 dollars in claim amount

Factoring is especially worthwhile for companies with high levels of outstanding debts and low equity, as they can save money when purchasing via the discount. No consideration should have been agreed for the services already provided, so that the factor can act without complications.

The actual factoring costs are highly dependent on various factors such as sales volume, industry, term of payment, type of performance, creditworthiness of the entrepreneur and debtor, etc. The cost of factoring is very individual and fluctuates between 0.15% and over 4%. As a rule of thumb, the higher the turnover, i.e. the more claims are assigned and the better the credit rating, the cheaper factoring becomes.Before a concrete offer is made, therefore, only a personal contact of the factor with the entrepreneur needs to get the support.

Can you give me some examples of factoring?

The commercial provider sells telephone systems to other contractors and installs them on site. In addition, he offers advice on this. He has already been successful on the market for 15 years and now wants to use factoring to create additional liquidity in the company and to collect receivables from very specific customers, which the dunning and the correspondence and the legal options to make available to an external service provider. Factoring should also be used as a deterrent to certain customers to elegantly reject further orders from these customers. The factoring works perfectly there.