Corporate Finance: Increase Liquidity through Factoring

by Richard Womack

 

 

 

 

Newly-founded and expanding companies must pay particular attention to their liquidity planning. Insolvency is the most common reason for bankruptcy. In examining possible financing alternatives to traditional working capital loans, more and more companies are finding factoring. By that is meant the sale of claims against own customers already before the due date. With the money that the factor transfers, companies can be paid on time, such as materials and personnel, even if they grant generous payment targets to their own customers.

Professional service providers on the Internet

Professional service providers on the Internet

Important for the successful use of factoring is a reliable financial partner. Although factoring companies are not banks, they offer a service that is subject to authorization under the German Banking Act. They are controlled by the Federal Financial Supervisory Authority (BaFin) . This gives the seller of the claims a high security. In virtually every major city there are corresponding offers such as Wolf Factoring, your factoring company in Stuttgart . However, the corporate headquarters does not play a major role in the service itself. A modern factor takes advantage of the opportunities of digitization and offers the required workflows for factoring online. This way, the required documents, such as invoices, can simply be uploaded – the paperless office becomes a reality. In addition to the cost-effective administration, speed also speaks for the digital process. After two to four days, the factoring taker has the money in the account. The factor also benefits from the automated processes. The accounts receivable management of Wolf Factoring is also based on this: Due invoices can be easily identified and payment can be remitted without delay.

Factoring does not have to shy away from the cost comparison

Factoring does not have to shy away from the cost comparison

Of course, the factor receives money for its services. The costs are made up of two components: the factoring fee covers the actual service. Their amount depends on the scope of the functions transferred to the factor, for example accounts receivable and dunning. Usually, the fee also includes the assumption of default risk. In order to compare the costs of factoring with the expenses that would be incurred in your own company, you must therefore offset personnel costs and the time required in accounting, material and postage, but also the contributions for a credit insurance. The second component is the interest that the factor demands for pre-financing. For their calculation, the time between the sale of the receivable and the due date of the receivables is decisive. They are comparable to the interest on a working capital loan.

 

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