What is factoring?
The traditional way of invoice factoring is the outsourcing of accounts receivable to a specialised company that bears the risk of defaults and administration costs for a fee. This therefore concerns the pre-financing unpaid invoices.
By transferring your debtor management to this specialised factoring company, you immediately receive part of your money as compensation. This sounds very attractive, but there are also disadvantages.
Advantages and disadvantages of the traditional way of factoring
Benefits of factoring:
- The outstanding invoices are paid immediately, which improves the cash flow of your company and thus your liquidity.
- You save a lot of time, because your debtor management is taken over by a factoring company. This allows you to focus on other important issues within your company.
Disadvantages of factoring:
- Often only a (small) part of the outstanding invoices is pre-financed.
- You no longer have control over the invoices and debtors. This allows choices to be made that are not in your best interest. An example may be that a debt collection process is started, while there is actually substantive communication.
- Factoring is an expensive process. You pay a decent commission to the factoring company.
- Your company image can be affected. Customers deal with a factoring company and no longer with you. This can ensure that customers no longer feel connected to your company.
With debtor management software you have more control over your debtors and more control over the process. The software gives you more insight into who your debtors are, where they are and when they pay their invoices on average. Communication with your debtors is also an important part.
This information makes it easy to calculate your financing margin. This is done based on the risk of your portfolio. By using the debtor management software, invoices are paid on average 30% faster (at Payt), which means that this risk will be lower than without the software.
The software platform gives you direct insight into the amount that you can pre-finance. You will receive this on your own account within 24 hours. The modern form of factoring therefore means that you do not hand over your debtor administration, but rather control the process yourself. This gives you room to communicate with your debtors without affecting your liquidity.
So, all the advantages of traditional factoring, but without the disadvantages.
This modern form of factoring is an initiative of Payt in collaboration with New10. Currently only available in the Netherlands.
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