Fine Development Assured with the factoring Process Now

The financing instrument factoring is becoming increasingly popular among medium-sized companies. The increase in market volume observed since the beginning of the year continues. “For the first half of 2017, we recorded an increase in revenue of 9.44 percent compared to the same period of the previous year. At the same time, the number of factoring users rose by ten percent. This consolidates the positive trend of recent years. Also for the coming months, according to the association, an upward trend is emerging.

Among the advantages of factoring is that companies can protect themselves against payment defaults. Because the default risk of the claim is transferred to the factor company. In this way, they optimize the cash flow, get financial planning security and can discount invoices.

Seven tips for proper pitching

The growing interest in factoring is also reflected in a representative study, which surveyed more than 1,500 SMEs on behalf of the association. According to this, every second financial decision-maker (53 percent) considers the principle of factoring, which is congruent to sales, to be advantageous. For that the factoring companies are quite specific about.

Also, 53 percent rate the loss protection associated with the sale of receivables as an important benefit. “We believe that factoring is still a people business. Because we know the requirements of our customers very well from our day-to-day business, we can individually design financing solutions and support growth – also in the course of digital change processes – by small and medium-sized companies, “says Schacht.

The factoring institute assumes the customer’s accounts receivable by concluding a factoring contract with the factoring customer. In it, the factoring customer undertakes to sell his claims to the factoring institute and transfer them to him. In return, the factoring institute undertakes to buy and settle the receivables from the factoring customer. The contract regulates either the assumption of all demands or demands on certain customer groups. The contract usually refers to claims that arise after conclusion of the contract but also existing claims can be included.

A factoring agreement is a longer-term, the maturity is at least two years. In practice, even contract periods of four to five years are the rule.

Credit check and limit allocation

Before the conclusion of the factoring contract and during the entire contract period, the factoring institute checks the creditworthiness of the debtors at intervals. Based on the result of the audit, the factoring institute awards so-called purchase or customer limits up to the amount of which it bears the default risk of a debtor. For exposures exceeding the limit, the factoring customer bears the risk himself.

 

Purchase of receivables

The basis for the purchase of the receivables from the Receivables Institute is the customer’s invoice to the debtor. It first checks the invoice data and the invoice amount. The processing takes place in most cases by electronic means. The required invoice data are transmitted electronically to the factoring institute. This saves not only costs but also time.

If the invoice amounts are within the limits of the respective debtor, the factoring institute buys the receivables. If not, the receivables are placed in a waiting position until a purchase is possible again due to payments received from the respective debtors.

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