FAQ – Factoring
FAQ - Factoring
Here you’ll find answers to the most important questions.
1. General Information / Definition
What is factoring?
Factoring refers to the sale of invoices to so-called factoring companies. Factoring applies to goods and services. The debtor’s place of business is irrelevant in this context.
How does factoring work?
In factoring, a factoring company purchases your receivables from goods delivered or services rendered and pays you an advance on the outstanding invoice. Because the factoring company pays you early, you can immediately use the funds to continue your business operations.
What are the advantages of factoring?
- Fast Access to Cash – Receive up to 90% of the invoice amount within 24 hours
- Protection against bad debt and, if necessary, professional accounts receivable management and collection services provided by the factor
- Higher equity ratio and, as a result, improved credit ratings
- Competitive Advantages Through Longer Payment Terms
- Additional collection services for sold receivables
What types of businesses is factoring suitable for?
Would you like to generate immediate cash flow from your outstanding receivables while still offering your customers extended payment terms? If so, factoring may be the right solution for you. To qualify for factoring, your company should have a certain annual revenue (starting at 500,000 EUR). Factoring is also traditionally used in B2B business—though B2C solutions are sometimes possible as well. Generally, with a factoring solution, the factor finances the entire volume of invoices. While the assignment of individual receivables is unusual, it is also possible.
When is factoring not a good fit for my business?
Factoring is an excellent form of supplementary financing for many companies. However, there are, of course, certain situations where factoring is not suitable: for example, when services have not been fully rendered (e.g., project-based transactions or billing according to VOB), intercompany receivables, payment terms exceeding 180 days, or when receivables have already been assigned to another party.
2. Costs
How much does factoring cost?
The cost of factoring depends on your company’s specific financing needs. Factors such as annual revenue, the average payment term, the number of customers, and the associated invoices are relevant here. Factoring costs are based on your company’s gross revenue and typically range from about 1.5% to 12% (depending on the specific case). In addition, there is interest and, if applicable, a one-time structuring fee. If you’re interested, contact your GFL financial experts to receive a no-obligation quote for your company.
What are the components of factoring costs?
Factoring costs are calculated based on the advance payment of invoices, the assumption of the del credere risk, accounts receivable management, and the collection process. In most cases, factoring fees, interest, and accounts receivable verification costs are charged separately. There is also the option of choosing an all-in fee based on a percentage of the factored revenue.
What company-specific factors influence factoring fees and interest rates?
- annual revenue subject to allocation
- required line of credit
- Creditworthiness (operating income, equity ratio, credit reports, etc.)
- Number of Customers & Number of Invoices
- Accounts Receivable Structure (Diversification/Concentration)
- Agreed Payment Terms
- Industries We Serve
- Preferred Factoring Option
3. Terms of the Contract
What types of factoring are there?
There are many different types of factoring, such as full-service factoring, in-house factoring, maturity factoring, true/false factoring, open/silent factoring, and export factoring. The questions below explain some of these types in more detail.
What is full-service factoring?
In addition to financing, full-service factoring includes receivables protection (through credit insurance) and the handling of accounts receivable management: The factor takes over all invoicing for your company, thereby saving you a significant amount of time and money.
What is in-house factoring?
The factoring client takes advantage of the financing and risk protection but, unlike with full-service factoring, handles accounts receivable management—acting as a trustee for the factor—on its own and does not utilize any additional services.
What is maturity factoring?
In this type of factoring, the factoring client takes advantage of full risk protection and accounts receivable management but does not receive immediate payment of the purchase price.
What is the difference between true and false factoring?
If the factor assumes the credit risk of a receivable, the process is referred to as true factoring. If the credit risk is not assumed, the process is referred to as non-true factoring.
What is open/discreet factoring?
Open factoring refers to a process in which the debtor is notified of the assignment of the receivable and is asked to pay the outstanding invoice directly to the factor’s account. In silent factoring, on the other hand, the customer does not receive any notification of the sale of the receivable—payment is made indirectly.
What is export factoring/import factoring?
Factoring providers offer factoring services for both domestic and international transactions: If a domestic export company uses factoring, this is referred to as export factoring. If, on the other hand, a foreign company uses factoring for imports into Germany, this is known as import factoring.
How long does it take to implement factoring in my company?
It takes about 1–3 months to set up factoring.
The GFL Factoring Calculator
Have you already requested factoring quotes? Our GFL Factoring Calculator shows you your factoring costs and the increase in liquidity so you can compare them directly.
Our Success Stories.
Here's what our customers say about us:
Insurance and Financing Coordinated with Each Other
“I appreciate the independent and professional support provided by GFL, and I’m happy to recommend them.” Andreas Bruthier, MHB
Additional Working Capital
“GFL has a high level of expertise in various fields, can create specialized solutions, and has an exceptionally strong network.” Gerold Lorenz, Interfer Edelstahl
Financial Consulting in a Growth Market
“GFL stands out for its expert advice, provided on an equal footing from business owner to business owner, and for the way it connects the various topics.” Marco Göbel, Ex-Trade
Do you have any other questions?
Please feel free to contact us!
If you have any further questions about factoring, please feel free to contact us.
