What you need to know about factoring. With this list of questions (FAQ), we provide you with answers that are easy to understand, and therefore with a good overview of the most important characteristics of factoring.
Click a question in order to see the corresponding answer.
What are the advantages of factoring?
- Instant liquidity, since an advance of up to 90 percent of the gross invoice amount is possible.
- Additional cost-saving opportunities in purchasing (special conditions, volume rebates, bonuses, early payment discounts).
- Increased equity-to-assets ratio, improved balance sheet ratios and therefore possibly improved ratings.
- Better competitiveness due to increased commercial flexibility.
- Financing that parallels sales, which avoids liquidity gaps.
- Improved overall financing, support in addition to bank financing.
- 100 percent protection against bad debts - guaranteed payment by Eurofactor on the purchased, undisputed receivables 120 days after the due date.
- No requirement to prove the customer's ability to pay.
- Optimal information regarding the debtor's creditworthiness and therefore secure sales channels, especially in case of exports.
- Secured sales and budget planning.
- Control options for a balanced customer portfolio.
- Outsourcing accounts receivable management, debtor bookkeeping, dunning, and collection services.
- Legal action for overdue receivables carried out by Eurofactor.
- Removing potential conflicts in customer relationships in case of payment problems.
- Continuous monitoring of creditworthiness.
- Improved customer payment practices.
How does factoring affect the balance sheet?
Through factoring - selling receivables without recourse - you get instant liquidity from your current assets. The liquid assets freed up can be used to reduce current liabilities. In this way, total assets are reduced and therefore the balance sheet ratios and equity-to-assets ratio can be improved.
What prerequisites must a company fulfill?
The company has gross annual sales of at least 1 million Euros, the goods or services have been fully delivered at the time the invoice is issued, the receivables are short-term in nature, proper order processing and accounting are essential, the customer base has a constant structure as far as possible, the range of debtors is as broad as possible, the receivables are free from the rights of third parties (no assignment), and the business does not result in counter-claims (=> offsets). Receivables from private individuals, related companies, VOB (German Construction Contract Procedures) services, installments, and interim billings cannot be factored.
How high do the gross annual sales of the company have to be?
1 million Euros gross annual factorable sales and up.
Which industries are not suitable for factoring?
In general, companies who perform their services in segments and where these segments are also paid in installments by the customer are not suitable; for example, this is common in the construction industry, in project financing, for machine and facility construction, and in software development. In addition, receivables from private individuals, related companies, VOB (German Construction Contract Procedures) services, installments, and interim billings cannot be factored.
When is a transaction not factorable?
VOB (German Construction Contract Procedures) transactions, project transactions, amortization or leasing transactions, installment transactions, individual software development prior to acceptance, prepayments / partial payments, tooling calculations prior to acceptance (e.g. machine construction), set-offs in case of reciprocal transactions, receivables from private persons, commission and sample transactions / pro forma invoices, shipping collections, third-party transactions without confirmation of acceptance.
How high are the costs?
We require detailed information for an individual calculation in order to provide you with a quote. The terms normally depend on the sales, debtor structure, number of invoices, number of debtors, and, with export factoring, the countries to which you export. The fees - which can also include commercial credit insurance - are calculated on this basis.
Interest is calculated at a variable rate for the term of the advance, based on actual financing used.
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