Factoring: how does it benefit the company and its finances?

Managing business relationships for companies can be both time-consuming and resource-intensive, and it is here that a partner specialising in factoring can offer crucial support. In actual fact, this solution benefits the company in several ways, but how exactly? Enea Lombardozzi, Sales Manager of the Bari branch, explains.

Why should I turn to a factor rather than manage my trade receivables in-house?

In business-to-business relations, the negotiation of payment timing and the type of collection methodology is an important aspect. These variables, once defined, engage time and resources for the monitoring of receipts and thus incur significant costs that with the help of a factor can otherwise be used in other business segments.

The partner specialised in factoring has, in fact, two important specificities, the first being the management of trade receivables on behalf of the company and the second, the ability to be able to advance them.

The factor takes care of the collection and monitoring not only of the receivables themselves, but also of the assigned debtor’s health in general. Moreover, by shifting the creditworthiness onto the debtor, the factor is able to provide a credit line equal to the company’s actual need on the individual debtor, thereby overcoming the traditional bank’s obstacles of risk concentration.

What are factoring fees? What is the difference between a flat or monthly fee?

Every banking product or service on the basis of its characteristics, has costs; in the case of factoring, there are credit management fees. Since the all-round management of trade receivables is the factor’s speciality, management costs are estimated and applied on the basis of the agreed or expected time-frame for collection of the receivable.

Specifically, factoring commissions are the credit management costs that are applied on the nominal amount of the credit charged to the bank, they can be:

“flat”, i.e. applied on a one-off basis to the total assignment regardless of the duration of the credit; or
“monthly”, i.e. applied monthly until the invoice is collected.

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Are my company's financial statements affected in any way by the use of factoring?

The company’s financial statements offer a real image of the company’s health and are also the first ‘business card’ for both lenders and the market. The balance between cash inflows and outflows, indebtedness and the percentage of credit exposure is certainly important, all of which, combined with the company’s central risk register, affect a company’s creditworthiness. Very often, companies find themselves with very high trade credit exposures, resulting in a significant shortage of liquidity that could otherwise be used for further business investments. In this regard, if factoring is used, the company’s finances will benefit in two ways: enjoying an increase in cash and cash equivalents and, in the case of non-recourse factoring, an improvement in the net financial position.

Advertising message for promotion purposes. For Factoring product contractual terms and conditions, please consult the key information sheets available in the Transparency section of the website www.bancaiﬁs.it.

29 May 2024