Fantastic Working of the Companies with the Proper Factoring Process

Who does not know this situation?The goods are delivered / provided the service, the bill is made, but the customer does not pay, not yet or not completely. Without risk protection, not only can the entrepreneur be deprived of liquidity, but profitability can also be negatively affected. In extreme cases, bad debts even threaten the existence of the entrepreneur to a greater extent. Factoring minimizes this default risk.

Factoring protects against bad debts

With the recessionless purchase of receivables, the default risk for the sold receivables is fully transferred to the factor. If a customer (customer) becomes insolvent, the factor bears this risk. The advance payment already made remains with the entrepreneur and is not repayable.

In the first step, it must always be checked whether the deliveries / services or the existing business model are factorable. This means that the receivables must be paid in full, free from any claims by third parties at the time of the accounting. Dresdner Factoring AG exclusively finances commercial receivables (B2B). Taking good care of the factoring invoices happens to be essential there.

Requirements for factoring

The prerequisite for concluding a contract with a factor is a credit check conducted by the latter, which, however, differs significantly from the credit check of a bank. In contrast to the bank, which primarily examines the creditworthiness of the borrower, the focus of the factor is essentially on the examination of the receivables to be purchased, ie, above all, on the creditworthiness of the debtor (debtors) and the nature of the receivables. The purchase volume is controlled by granting a financing limit (factoring framework) that can grow in line with sales. In contrast to the bank loan, no additional collateral is usually required for this financing limit.

Factoring users profit from the currently prevailing low-interest phase in terms of factoring costs. The amount of the factoring fee to be paid by the factoring customer is in the discount range. It depends on the annual turnover, the number of invoices, the debtor structure, the industry and the payment term of the customers. The interest rate for the provision of the pre-financed invoice amount is at current market conditions for current account overdrafts or even partially lower. The interest settlement takes place exactly to the day.

Potential savings:

  • Hedging against bad debts
  • Purchasing benefits by using discounts, discounts and bonuses from your own suppliers
  • Administrative relief of debtor management in connection with cost savings
  • Interest cost savings for fast payments

Reduce the cost of overdraft

Increase of the equity ratio and thus optimization of the bank rating, which has a decisive influence on the credit conditions

Factoring costs

Even with an unchanged cost structure, the advantages of factoring are obvious:

  • Flexible “growing” financing
  • More independence
  • More safety
  • No additional collateral required

Comparison: factoring costs and savings potential

Factoring is becoming more and more important in Germany due to its flexibility and cost efficiency. Depending on the company situation, the cost savings achieved can be significantly higher than the factoring costs.

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