Typically, factoring is a short-term financing technique that involves a company entrusting the management of its trade receivables to a financial company called factor. Still unknown to business leaders, it has many forms and is now an ideal tool to finance its cash.

How factoring works

Depending on the terms of the factoring contract, the financial company buys the unpaid invoices from the company and proceeds to the recovery of the receivables on behalf of the company, for a commission which is levied at the time of the purchase of the invoices and a guarantee against the risk of unpaid bills. This commission, which consists of the cost of managing the customer item and the cost of financing, represents the factor’s remuneration. While the first cost is proportional to the amount of the bills not yet due to be managed, the second represents an interest rate of the contribution granted. The factor company is important in this matter.

Thanks to the factoring technique, the company has a cash position which was then in the form of receivables that have not yet fallen due and optimizes the management fees of its receivables, because all the management is transferred to a third entity to which only a commission is paid in lieu of labor costs and administrative costs.

With the diversity of customer needs and the evolution of the markets, variants of the classic factoring offer exist to respond specifically to the different expectations of companies. Thus we can denote techniques such as factoring, import / export factoring, confidential factoring, managed factoring and unmanaged factoring, factoring of purchases, factoring of balance and reverse factoring.

Fixed-price factoring

Flat rate factoring is a variant that differs from conventional factoring in the remuneration of the factoring company, in terms of the cost of managing the receivables only. With fixed-rate factoring, the remuneration of the management of the customers and the recovery of the receivables is fixed according to a fixed amount to be paid according to a precise periodicity, whatever the amount of the invoices not yet due, which are presented to him, during all the duration the factoring contract. The main advantage of this variant is that the company that benefits from it knows the amount of the service in advance. But at the same time, the major disadvantage is that even if you do not have any bills not yet due to present to the factor, the

Export Factoring and Import Factoring

Export factoring is reserved for the financing and management of invoices issued to international customers. As for import factoring, it allows the company to obtain financing for its foreign purchase and import operations.

 

While export factoring is similar to conventional factoring with the only difference that customers are foreign, for factoring import is a little more complicated. Here, it’s about having a product delivery for which you are sourcing abroad, to a local customer. The factor pays the strange supplier and delivers the goods to the local customer and proceeds with the collection of the claim. The factor pays you the amount of your claim before or after the payment of the customer by taking the commission, according to the terms of the factoring contract. With export factoring, the company ensures at the same time that its customer will always be supplied, that its supplier will always be settled in time and that it will always benefit from its commercial margin. This technique can be used to deliver imported products to a local market even without having cash.