Few companies enjoy a steady flow of business with customer orders taken months in advance, advantageous payment terms with clients and suppliers as well as a flexible cash-flow.
When things start to get tricky, business leaders soon see their short term credit facilities being gradually tightened by their banks. An overdraft facility may be blocked and, if the situation deteriorates further, credit lines may be suddenly reduced or even cancelled.
The reason for this is that banks analyse their commitments primarily on the financial health of the business to which they grant credit. Cancellation of lending facilities can take place throughout the year and the period when balance sheets are published is a key point in the renegotiations of terms.
Against this background, securing funding is a major issue for businesses. An alternative to standard short-term financing is: Factoring.
This solution is widely used (it is for example the second source of short-term funding in France), and looks primarily at the value of the assets sold (trade receivables), rather than the company itself. Regardless of uncertainties, a client’s portfolio supported by credit insurance and a reliable billing process becomes a stable source of funding. Indeed, the financier no longer bears its risk on a single company but sees it spread over a number of debtors.
The right qualification of the asset sold and the billing method determines the sustainability of the factoring line.
We can help you in this process.