Factoring

What is factoring?

What is the main purpose of factoring?

The objective of factoring is clear: to relieve cash flow by accelerating access to cash. This enables the company to finance its immediate needs (salaries, purchases, investments...) without waiting for payment from its customers. In this way, the company retains greater control over its cash flow cycle.

Why factoring is a flexible, scalable solution

One of the major advantages of factoring is its ability to grow with the company's business. As sales increase, so do the amounts assigned. In fact, it's a solution perfectly suited to phases of development and/or rapid growth. It's also an alternative to bank financing, since it's less rigid and quicker to set up.

Why choose factoring? What are its advantages?

Factoring is not just a solution for receiving payment for invoices without delay. It's a strategic tool that secures cash flow, increases financial flexibility and supports business development. The benefits of factoring, whatever the size of the company, include:

Immediate cash flow improvement

The main advantage of factoring is its ability to transform invoices into cash immediately. No need to wait for customer payment terms: as soon as receivables are assigned to the factor, the company receives a cash advance, often between 90% and 95% of the amount including VAT. This leverage makes it possible to meet current expenses and invest without fear.

Flexible, rapid, scalable financing

Factoring keeps pace with a company's growth: the larger the accounts receivable, the greater the financing required from the factor. This financing solution therefore adapts to the volume of business, making it particularly useful in periods of growth, seasonal peaks or post-crisis recovery.

Outsourcing of accounts receivable management

Factoring also reduces administrative burdens. In fact, depending on the contract, the factor can take care of dunning, collection and payment follow-up. The company can thus refocus on its core business while optimizing its financial management.

Reduced risk of non-payment

Factor financing is generally backed by a credit insurance solution. This protects the company if its customer defaults on payment. In fact, it's the credit insurer who reimburses the factor, not the user company. This reinforces financial security, especially in an uncertain economic climate or in the event of dependence on major customers.

A positive impact on the accounts

Factoring can also have a favorable effect on the balance sheet. In the case of deconsolidating factoring, assigned receivables are removed from the balance sheet, reducing net debt and improving financial ratios. This can also make it easier to obtain other financing, by reassuring financial partners about the solidity of cash flow and the quality of management.

A low cost for a high value-added service

Factoring has a cost: it consists of a management commission linked to the sales entrusted and a financing commission linked to the advances paid. However, this cost is far outweighed by the benefits, since it provides rapid access to cash, protection against unpaid invoices, and time savings in managing and securing financial flows.

When does factoring become a wise choice for business?

Factoring is a wise choice, particularly for companies with significant trade receivables, long or irregular payment terms, or a recurring need for cash to finance their business. It's also a good choice when a company wants to diversify its sources of financing. Finally, the factoring solution is ideal for professionalizing and securing the management of accounts receivable.

How to set up a factoring solution

Setting up a factoring solution with AU Group is a fast, supervised process. Our dedicated team analyzes your financial situation, your financing needs, and the profile of your customer portfolio. We then work with you to select the most appropriate factoring contract, negotiating the best terms with the factor of your choice.

Our role? To simplify every step, secure the implementation, and optimize the management of your trade receivables.

Thanks to our support, you save time and gain rapid access to an effective cash flow solution. What's more, you don't have to assign all your customers to the factor, or even request financing for all receivables entrusted to the factor. In fact, you can ask the factor to finance any amount you need, for any length of time. Factor financing is therefore flexible, tailor-made and can be adjusted to your cash requirements as and when you need it.

What are the different types of factoring?

There are several factoring solutions depending on your company's needs, the structure of your receivables and your financial objectives.

Is factoring compatible with other financing solutions?

Yes, factoring can coexist with other financing solutions. It doesn't replace a bank credit line, it complements it. This compatibility enables companies to diversify their resources while strengthening their financial structure.

Factoring can be combined with credit insurance, a supply chain finance solution, a cash credit. Each tool meets a different need. This synergy enables them to optimize the management of customer receivables, debt collection and the guarantee against non-payment.

At AU Group, we build tailor-made financial programs that integrate factoring into a global strategy. Our aim is to give you flexibility but also, and above all, to secure your cash flow so that you can structure a financing plan tailored to your business.

What are the points of attention in factoring?

For factoring to be an effective solution, it's important to prepare the project well in advance, paying particular attention to the following points:

• Eligibility criteria to be taken into account: the factor analyzes the quality of the customer portfolio, overdue payments, disputes, and the company's financial health. It also looks at the invoicing process, since the debt invoiced must correspond to a service rendered. The issuing of a factoring contract always depends on the approval of the factor's credit committee, which is sovereign.
• Potential impact on customer relations: In the case of notified factoring, the customer is informed of the assignment of receivables, which may lead to a reaction on his part. This is why factors have developed confidential factoring: the company's customers are not informed that invoices issued by their suppliers are assigned and financed by a factor. However, this confidential approach is not automatically offered by factors to companies, but is agreed on a case-by-case basis, depending in particular on the company's financial health or control of its receivables.
• Contractual commitments: Factoring contracts generally stipulate a minimum cost. The company must therefore be careful to qualify its needs and estimate the sales it intends to entrust to the factor over 12 months.