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Factoring
Factoring is a short-term financing solution that enables a company to transform its customer invoices into immediate cash.
Rather than wait for payment terms, which often vary between 30 and 90 days, the company assigns its receivables to a specialized organization called a factor. The factor pays an advance of up to 95% of the amount including VAT, within a very short timeframe.
800 customers
use a financing solution we have set up
€45 billion
in receivables are factored through our negotiation
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.
Which companies use factoring?
- Large groups: they often integrate factoring into a global financial strategy, to optimize receivables management on a national or international scale.
- Companies undergoing restructuring: in the event of difficulties, factoring provides an alternative financing solution to conventional banking solutions. In fact, factor financing has the advantage of being based on receivables and not on the quality of the balance sheet, which can be deteriorated.
- Exporting companies: thanks to export factoring, they mobilize international receivables without waiting for transfers from their foreign customers.
- SMEs: when they are in an expansion phase, they rely on factoring to strengthen their cash flow without adding to their bank debt.
- Industrial SMEs: often faced with long payment terms, they use factoring to avoid cash flow tensions.
- Growing VSEs: young companies that are recruiting and investing can secure their cash flow with a factoring contract.
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.
To activate a factoring solution, you generally need to provide :
- Annual financial statements
- Recent accounting situation
- Details of your accounts receivable
- Sample invoices
- Credit insurance policy if you have one
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.
Here are the main types:
- Confidential factoring: you assign your receivables without your customers being informed.
- Factoring with recourse: the factor can turn against the company to claim repayment of cash advances if its customer fails to pay its receivable.
- Factoring without recourse: factor financing is assimilated to payment of the company's customers: the factor is therefore no longer in a position to claim reimbursement of cash advances from the company if customers fail to pay. This type of arrangement is more specifically designed for ETIs and key accounts. To be valid, this product is backed by credit insurance and requires validation by the company's statutory auditors.
- Deconsolidating factoring: with deconsolidating factoring, the assigned receivables are taken off the balance sheet, which improves the company's financial ratios and therefore its rating.
- Export factoring: this factoring is specially designed for companies working internationally. It makes it possible to mobilize receivables in euros or other currencies, and bets on customers all over the world. Factoring export business is therefore a particularly dynamic option, and factors provide companies with long-term, proven solutions.
- Syndicated factoring: adapted to medium-sized companies or large groups, syndicated factoring enables several participating factors to be involved behind the arranging factor with whom the company contracts. This enables the company to spread its financing over different participants, thereby limiting the risk of dependence on any one factoring company. It also helps the company to achieve its financing target if a single factor is unable to meet its needs. Finally, syndicated factoring is simple to set up and manage for the company: it uses a single tool, that of the arranging factor.
Our support
AU Group can help you implement all these solutions on the national or international market. Together, we select the system best suited to your business, your structure and your financial challenges. Contact our teams to discuss the most appropriate solution for your company.
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.
Risk management
With AU Group, these risks are identified, anticipated and framed from the outset. We select the most suitable factoring solution for you by negotiating the conditions. Our support is your guarantee of a smooth implementation.
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Frequently asked questions
All the answers to your questions about factoring.
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Factoring is a financial solution that enables a company to transfer its customer invoices to a specialized organization (the factor) for immediate financing. This improves cash flow without waiting for customer payment terms.
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The principle of factoring is simple: the company sends its invoices to the factor, who pays an advance (around 90% of the amount incl. VAT). The factor can then take charge of collection from customers, or leave it to the company to manage. Once the invoices have been paid, the factor pays the balance, after deduction of its management fees.
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Taking out a factoring contract allows you to secure and strengthen your cash flow, without having to wait for customer payment deadlines. It's an effective solution for:
- Obtaining cash quickly and financing business development (investments, recruitment, purchasing).
- Protecting against non-payment (factors can offer a credit insurance solution, or customers can take out their own credit insurance policy).
- Outsourcing management of accounts receivable, in particular payment tracking and collection.
- Saving time, factoring is particularly useful for growing companies faced with long payment deadlines or large accounts receivable.
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Factoring is suitable for all companies, whatever their size or sector of activity: VSEs, SMEs, ETIs or major groups. It is particularly well-suited to companies with long payment terms, such as those who do a lot of export business, or those who want to secure their cash flow from business-to-business (B2B) customers. These cash flow needs can be one-off or recurring.
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Credit insurance only protects against non-payment, by indemnifying the company if a customer fails to pay. Factoring, on the other hand, not only allows you to finance invoices before they fall due, but also to delegate the management of accounts receivable. The two can be combined for optimum coverage.
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The cost of factoring depends on several factors:
- The amount of invoices assigned,
- The annual volume of sales,
- The number of customers assigned to the factor,
- The risk profile of the customers,
- The financial health of the company using the factoring solution,
- The associated services (collection, guarantee against non-payment, etc.) when subscribed by the company using the factoring solution.
In general, it comprises a factoring commission, i.e. a management commission based on the sales entrusted to the factor, and a financing commission calculated on the basis of the drawings requested by the company on the assigned receivables.
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- Factoring with recourse: if the factor's customers fail to pay, and if this non-payment is not covered by credit insurance, then the company is responsible for repaying the factor's financing.
- Factoring without recourse: once assigned to the factor, trade receivables are deemed to have been paid by the customer; the factor can therefore never take action against the company, even in the event of unpaid receivables.
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Yes, to be implemented, the factoring contract must be validated by the factor's credit committee, which is sovereign. Particular attention is paid to
- Compliance of receivables with factoring requirements (invoicing process, progress billing, etc.)
- The customer portfolio
- The company's financial situation
- Litigation levels or late payments.
Today, there is a wide range of factoring solutions on offer, and many different players. Not all have the same risk position. In the event of refusal, it can be useful to compare several offers or work with a factoring broker to find the best solution.
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