True Factoring Options As Per Your Requirement

Do you need factoring? Companies can sometimes encounter cash flow difficulties. In this case, they can think of factoring.

Factoring is a means by which a company transfers with a financial counterparty a claim to a third party called a factor (factoring). The latter will recover the claim and may assume responsibility for its recovery from the debtor. This is an option. It is usually credit institutions that assume this function, but brokers are more and more present as we will see.

Let’s look at an example to better understand the factoring situation: the green curve with factoring, red without factoring. The factoring of receivables is there perfectly.

Factoring

Managing your cash flow means planning

Here is the example of a TPE of $ 3.5 million excluding turnover which remains fragile despite a positive operating result (9% or $ 311,000) after $ 1.8 million excluding purchases. $ 1.4 million in operating expenses including $ 1.0 million in personnel costs.

Yet, despite this obvious profitability, the business manager is looking at his cash flow. It is a cash flow projection (receipts and disbursements per month) and realizes that despite a positive cash flow of $ 86K at the beginning of the year, his account will debtor as of the end of the 1 st month after its forecast the situation may not improve during the year.

To die profitable

The cash flow situation is stressful for everyone. Instead of focusing on its development, the business leader will spend time negotiating with the banker to cope with cash requirements.

The conclusion of the work of cash forecast of the entrepreneur is simple, the company may not be able to honor its commitments, to finance its working capital requirement (BFR) and even less to invest for the first time. ‘To come up. In other words, the company risks filing for bankruptcy … and dying profitably.

Factoring to finance the short term

To finance its operating needs, the manager thinks about a factoring solution. Factoring is within everyone’s reach. Each bank offers it, but there are also ultra-brokers specialized in factoring. The latter can study the different solutions with the leader. He will present to him in particular the strengths and weaknesses of the offers of the market, the head of enterprise chooses with confidence the solution he deems best for him.

 

 

 

What are the challenges of factoring?

factoring

The company that sells its receivables enjoys various advantages but there are disadvantages.

 

First important advantage. First, the price of the assignment of receivables provides advance financing to the assignor who can then settle his suppliers.

 

Then the outsourcing of administrative management, customer follow-up (recording of invoices, recovery of debtors in case of late payment, litigation service in case of non-payment) are carried out by the factor. In practice, the accounting department must also perform a small intellectual gymnastics, especially in terms of VAT.

 

The user company has better control over the return of its turnover.

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