Factoring is the ideal solution for companies to prevent the risk of customer insolvency, which is much more common than one might think. With this microcredit system, the company is therefore protected, but who can do it, how it actually works and why it is very useful for a company.
How does factoring work?
The principle of factoring is to transfer the receivables of the business to a factoring company, which is more commonly referred to as a factor. This is when the factor will quite simply finance the various invoices issued to customers very quickly.
The process of factoring is intended to be quite simple:
- First, the company will send the list of customers to the factor
- The factor will then verify all the customers and will give the approval or not according to a billing grid
- The customer will place his order, the goods will be delivered
- There will be the issuance of the invoice for the customer
- A transfer will be made within a maximum of 24 hours
- In the end, the invoice will be paid on the due date by the customer
Why use factoring?
Often companies allow their customer to pay their invoice deferred, this goes from 30 to 60 days, but the company must pay its suppliers. This generally results in a collection gap between the entry and exit of money. This is when factoring comes into play and makes it possible to compensate for this gap by immediately recovering the cash on its receivables, especially in tense periods such as COVID.
Who can do factoring?
Factoring has no limit, it concerns any type of business, whether it is high-growth, companies that accept payment terms, or simply for companies with high seasonality, for example. As well as the smaller structures, craftsmen, associations, liberal professions and self-entrepreneurs.