Factoring for quick payment of your invoices

What is factoring?

Factoring is also called debtor financing. Debtors are customers to whom you have delivered and who have received an invoice from you. With factoring, you sell your invoices to a factoring company (the factor). They then immediately pay most of the invoice amount. Usually 80% to 90%. You get that amount in your account immediately, so you get paid quickly.

Three forms of factoring

There are 3 main forms of factoring. American factoring and reverse factoring fit well with zzp' ers and SMEs. Traditional factoring suits larger companies more.

• Traditional factoring

  You pledge your entire file of debtors (your portfolio of debtors) to a factoring company. The value of this portfolio determines how much credit you get. For that credit, you pay a fixed amount or a percentage of turnover. The factoring company likes you to have a diverse group of debtors. Traditional factoring is an alternative to an overdraft and flexible credit.

• American factoring

  With American factoring, you decide which outstanding invoices you sell to the factor. Of those invoices, you get up to 97 % of the invoice amounts paid into your account. The factor can approach your customers in advance to check whether the service or product has actually been delivered. The factoring company takes over your debtor management. You can use American factoring for just 1 or 2 debtors.

• Reverse factoring (or supply chain finance)

  In reverse factoring, you sell the invoices you have to pay yourself to a factoring company. So, you get a bill from a supplier. You approve it and issue a payment guarantee. Then you give the invoice to a factoring company. That company pays the invoice before the due date so your supplier gets paid quickly. Finally, you pay the invoice and additional costs back to the factoring company yourself. This way, you keep money in cash yourself for longer so you can do business.

 

Who can benefit from factoring?

Factoring is suitable for entrepreneurs with outstanding invoices who need quick cash for day-to-day operations. And for businesses that are growing rapidly . American factoring and reverse actoring fit well with sole traders and SMEs. Traditional factoring suits larger businesses more.

What can I use factoring for?

Factoring is useful if you have customers who pay your invoices late. With factoring, you do not have to wait for payment from your customers. Your outstanding invoices are paid immediately by the factoring company. This keeps your business's cash flow going.

You can use the money immediately for your daily operations. Or for investments to grow your business. For example, buying extra stock, starting a new project, or hiring new employees.

Costs of factoring

With American factoring, you only incur costs when you use it. You pay per invoice. Factoring fees are 1% to 6% of the invoice amount. The factoring company sometimes also charges an administration fee per invoice.

With traditional factoring, you transfer all outstanding invoices to a factoring company. For this, you pay a fixed amount or a certain percentage of your entire turnover.

Are you going to use factoring? Then compare the costs of different providers.

Duration and flexibility

The duration of factoring is usually short because it coincides with the payment period of invoices. There are options for flexibility, such as selling part of the invoices. This is why American factoring is more flexible to use than traditional factoring.

Applying factoring

Do you want to apply for factoring? Then a factoring company must first admit you. Each provider has its own requirements. Compare terms and conditions before making your choice. Most factoring companies look at contract duration, debtor management, and credit risk. Sometimes they also look at the turnover and history of your business.

Have you found a factoring company? Follow these steps to apply for factoring:

• Submit application: this is usually done online via a form on the factoring company's website.
• Assessment: the factoring company will assess your application. This usually takes 1 working day.
• Sign the agreement: do you get approval? Check the agreement and sign it if you are happy with it.
• Submit invoices: you submit your invoices to the factoring company. You do this through an online platform.
• Payment: the factoring company pays (a large part of) the invoice amount to you, usually within 24 hours.
• Pay yourself: you pay the factoring company back at a later date, including the costs they charge for this.

Tip: invoice financing

Similar to factoring is invoice financing. Like factoring, you sell outstanding invoices to a finance company. The difference is that you collect these invoices from your buyers yourself. As a result, they do not see that a finance company pays the invoice in advance. Nor do they know that you are receiving financing. You remain the trusted point of contact for your business relation.

Help with business financing

The Financing Guide helps you find your way in financing your business. Do you still have questions? Call the helpline on 088 585 11 11, or ask an expert for advice.

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