Currently, around 10% of the gross domestic product is financed by factoring – and the trend is rising. Because factoring brings companies far-reaching advantages. It helps growth and more flexibility. That is why more and more companies are turning to factoring as part of their financing mix.
Why this is so and why you should also implement factoring in your company, we have summarized for them in this article.
Reduce risk with factoring
What do you do if you have long since performed your service and the payment deadline of the customer has already been exceeded? Write off the receivable and give up the revenue? Or have you allocated extra resources to go after the lost revenue on your own – meaning you’re spending on staff, postage and software on top of it?
To avoid the risk of default and additional costs, you can assign your receivables to a factoring service provider. This way you pass on 100% risk, save costs and get your money in any case.
Immediate liquidity through factoring
Especially with high-priced products it often makes sense to offer a payment term or installment payment. However, this can cause liquidity bottlenecks – Why? Because you, as an entrepreneur, have already incurred costs for delivery and performance and you do not yet have a monetary equivalent in your hand!
Factoring solves this gap for you. Because your factoring partner provides you with the liquid funds immediately. Late payers and long payment terms are no longer a challenge. In addition, your liquidity can be planned to the day!
Increase own creditworthiness through factoring
Factoring improves your credit score. Your balance sheet improves the moment your factoring partner takes over the trade receivables and thus converts them into a real deposit. Your equity ratio increases while your debt ratio decreases. Ratios used by banks to assess your creditworthiness.
Factoring therefore achieves a better rating for you. A better rating leads to better conditions with banks and suppliers. Investments in the future of your company and growth become possible through factoring.
The right factoring model
Through so-called “non-genuine factoring”, you not only protect your sales, but at the same time also your painstakingly built-up customer relationship. In this model, only receivables that have exceeded the payment term are transferred to the factoring partner. All invoices paid on time will remain in your company as usual! This form of factoring is not yet frequently offered and requires a lot of experience on the part of the factoring partner. With the DIA PAY factoring model of the DIAGONAL Group, for example, you can enjoy all the advantages of factoring and still retain customer sovereignty.
Workload reduction through factoring
Accounts receivable management deals with the administration of your receivables from your customers and is part of your accounting. You know it: a time-consuming and cost-intensive resource, but it’s all part of the business. With factoring, much of this work is transferred to your partner. Depending on the contractual constellation with your factoring service provider, they will take care of your invoicing, accounts receivable accounting and commercial dunning. Partners, like the DIAGONAL Group do this with your desired branding. Factoring is therefore at the same time an immense relief of work, especially for small and medium-sized enterprises!
Conclusion: With factoring you have a guaranteed turnover, more liquidity and a higher credit rating. Through your factoring partner, you can also outsource your entire accounts receivable management and still retain full control!