Factoring

Factoring is a financing option for businesses, similar to credits or loans. But just similar. We want to explain factoring using an example:

A company X has claims against a customer K. This means that the customer has received a delivery or service from the company, but has not yet paid any money for it. Now, X urgently needs money for a supplier. Using factoring, the company now sells these claims to a factoring company. X now receives between 70 and 90% of the claim directly as liquid funds from the factoring company.

The claim now passes from X to the factoring company, and K does not pay X but the factoring company. If the factoring company has been paid by K, X will receive the remaining amount.

WHAT ARE THE ADVANTAGES OF FACTORING?

• You benefit from working capital at all times

Probably the most significant advantage of factoring is that you can access your capital at any time. Once your customers have signed a contract with you, you can convert your money directly into cash instead of waiting for a long time.

• You benefit from discounts and rebates from suppliers.

Many suppliers give discounts, also known as cash discounts, if customers pay for goods or services immediately. Usually, you save 2-10% when you use your discount option. This can be very profitable for companies buying high-value goods. Financing through a factoring company is significantly cheaper than a so-called supplier credit for most companies in Switzerland.

• Significant relief in terms of administration

Many companies use factoring in Switzerland to reduce administrative costs. You no longer have to worry about collecting your money. After providing your customer with the goods or service, you pass the claim on to the factoring company. Your administrative process is now complete. The factoring company now takes care of the collection, dunning letters, and everything related to the claim.

• A suitable financing solution for a company in a growth phase

Factoring companies mainly help companies that are growing rapidly. When your business overgrows, so does the cost. Therefore, especially in the growth phase, liquid funds are often required to pay suppliers, etc. Supplier credits are expensive and uneconomical, which is why it is advisable to work with a factoring company at this stage.

• Protection against the risk of your customers defaulting on payments

When you work with a factoring company, you also minimize the risk of your customers defaulting on payments. If your customer becomes insolvent, the factoring company will take care of this problem. You usually don’t have to worry about anything. This not only minimizes the risk of payment defaults, but also minimizes your legal fees.