Knowledge base item

Factoring in growth

The importance of attracting working capital

Nowadays, it has become more difficult for fast-growing SMEs to obtain regular bank financing. In recent years, banks have become more reticent and require more extensive requirements in addition to an already proven business model. This can be problematic for fast-growing SMEs if it concerns an asset-light company, or if the required profitability still has to be realised by earlier investments. Fast-growing companies regularly need to invest in their working capital in order to have sufficient liquid assets at their disposal, which is why factoring can be a good solution for your company.

Sale of debt to a third party

In factoring, debtors are actually sold to a third party and the factoring company finances based on invoices the company sends. This form of financing is potentially very suitable for your company if you send invoices to other companies (B2B), but less so if the company sends invoices to consumers (B2C). There are factoring companies that offer both B2B and B2C factoring, however, this is not common because private individuals generally carry a greater risk and are therefore more difficult to insure. Factoring companies often use a credit insurance, whereby the possession of B2B invoices is often a condition. It is possible to sell your entire debtor portfolio or not to finance certain invoices if, for example, they always pay in time.

We can imagine that you are wondering how selling your invoices will affect your organization. Questions like: Will my customers continue to receive an invoice with our logo and company details? What kind of image does having factoring finance reflect on my business? Or, how does this process work?

Quickly switching to the outside world

With most factoring companies you send the invoices yourself in your familiar house style, but with the note that the invoice has been pledged to the relevant factoring company. In general, invoices must be paid into an account number managed by the factoring company, although there are some factoring companies that offer discretionary factoring. Factoring is sometimes incorrectly labeled as a point of weakness, but factoring is actually often used by fast-growing companies to continue to grow. It is also important to note that factoring companies are generally quick to respond, giving you quick access to the funding you need.

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Marieke Klaassen
Marieke Klaassen van BeurdenSenior Corporate Finance Advisor
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