Before concluding such a contract, it is necessary to have assessed the necessity. Once the decision is made, the forms of the contract should not be neglected.

  1. The interest of factoring

Above all, two questions must be raised by the company manager:

  • “How much will this service cost me?”
  • ” How much will I earn if the factor (the factor) arrives in the best case to cover all the bills that I send him? “

Is the difference between the two important? (if not, need not take out this type of contract)

Factoring is a contract that cannot be concluded for a short period, because of its cost to the subscriber, and the need for the factor to be able to bear the risk. For the factoring of receivables this is important.

The factor systematically asks the subscriber a monopoly of invoice processing: the first reason that can push a company to acquire a factoring service is the absence of risk assessment, a bad evaluation, a risk large unpaid bills; or a hazard, generated for example by a strong growth of activity, coupled with the need for the company to ensure a certain margin. It may also be interesting to ask the question of factoring following a management control revealing the additional costs, or the inefficiency of the internal collection service to the company.

The second interest of factoring is the cash advance: the factor pays immediately the price mentioned on the invoice, this interest must be qualified: there are other techniques for managing short-term financing: these may be commercial bills, such as the bill of exchange; or overdraft, or discount of effects??

  • The company must therefore by means of a quote, verify the overall effective cost of each solution, and opt for factoring only if it encounters cash flow problems coupled with collection problems.
  • The interest of factoring may, in spite of a higher cost, remain more interesting than an overdraft. Indeed, if it is easily granted by the banks, it can be removed at the slightest problem, or excess of society, subject to the abusive breach of credit (for more information on this topic, you can download for free on our site document is the summary sheet on the abusive breach of credit).

The difference between factoring and the bill of exchange is simple; since in the context of the latter, the responsibility of the creditor company may be engaged in case of non-payment, and the funds issued, counterfeit, which is likely to cause a significant and unforeseen shortfall in the cash of the company. This lack will never occur in the context of factoring, since the claim is transferred to the factor: the risks weigh on him, which in fact, ensures the payment of the invoice.

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