Types of factoring: How different types of factoring can help businesses grow.
Factoring is a financing solution that is becoming increasingly popular with entrepreneurs. There are different types of factoring available on the Dutch market. Factoring is a popular way for companies to improve their cash flow by selling outstanding invoices to a factoring company. There are several types of factoring available, including American factoring, traditional factoring, and reverse factoring. What are the differences, the pros and cons and which one is most suitable for you and your company?
What is a factoring company?
A factoring company serves as a financial intermediary that acquires your invoices and promptly converts them into cash. The concept of factoring is gaining popularity among self-employed entrepreneurs (zzp'ers) and small to medium-sized businesses (mkb's). But why opt for factoring? This is because it is one of the most efficient methods of financing. Once you decide to transfer your invoice to a factoring company, you can often have access to the funds within 24 hours. Additionally, factoring provides protection against the risk of non-payment by debtors.
1. Traditional factoring
In traditional factoring, it's all about the type of factoring that started it all. The main aspect is that the entire accounts receivable portfolio is transferred to a factoring company in traditional factoring. You receive a percentage of the total amount as an advance immediately, and the rest is paid out once the invoice is actually paid, in exchange for a fee to the factor. Unlike other types of factoring, where you have the choice of which invoices to sell, with traditional factoring, you are required to transfer the entire accounts receivable portfolio. This means that every invoice is sold, and you have certainty about your cash flow. Additionally, you benefit from low costs, usually less than 1% of your annual turnover.
Debtor management is taken over by some factoring companies. This is not the case at Boozt24, we think it is important that you keep control over your customers. This form of factoring provides freedom and certainty. Normally you enter into a contract for the long term and you have to deal with long contracts. What makes Boozt24 unique is that our contracts can be terminated on a monthly basis. Choose traditional factoring at Boozt24 and benefit from the advantages of flexible cooperation!
2. American factoring
American factoring is probably the best known form of factoring, also known as single invoice factoring. This form of factoring is very suitable for the self-employed and smaller SMEs, because there are no minimum turnover requirements for collaboration. American factoring is the most flexible and accessible form of factoring. Entrepreneurs can decide for themselves which invoices they want to sell to the factoring company and it is not mandatory to transfer all invoices of a debtor to the factoring company. However, the right to accept invoices remains with the factoring company, for example if the debtor does not pass the credit check.
Entrepreneurs can quickly start factoring without being tied to a contract with a predetermined term. The costs for American factoring differ per factoring company and depend on your circumstances, such as the payment term you use and the creditworthiness of your clients. The rates of American factoring are on average 2 to 6% of the invoice amount. Often 100% of the invoice value is paid, but beware that the costs of the service are calculated per invoice and settled immediately upon transfer of the payment.
Unlike other forms of factoring, American factoring is very suitable for starters and small entrepreneurs. It is the most flexible option and offers entrepreneurs the opportunity to decide for themselves which invoices they sell and at what cost. If you are looking for financial breathing space without being tied to a long-term contract, American factoring is a possible solution for you.
3. Reverse factoring
Reverse factoring means that the buyer of the goods or services arranges for a financial service supplier to pay the outstanding invoice(s) to the supplier. The scheme is implemented with the supplier's consent and the buyer repays the financier the invoice amount plus interest at a later date.
Also known as supply chain finance, reverse factoring is often used by large companies (the buyers is this case) to manage their cash flow and improve their working capital.
Compared to American factoring, the costs of reverse factoring are more favorable, namely around 3 to 4% of the invoice amount. This is because the debtor cooperates in the factoring process and the probability of non-payment is lower. Reverse factoring does require long-term cooperation and high creditworthiness requirements.
Why traditional factoring at Boozt24?
Boozt24 has gained a lot of experience and a good reputation in the field of traditional factoring for Dutch SMEs. In addition, Boozt24 is a member of FAAN . With Boozt24, you can receive an advance of up to 85% of the total amount owed to your company by your customers. Moreover, the credit risk is covered, and you benefit from low costs, usually less than 1% of your annual turnover with Boozt24.
What makes Boozt24 unique is that it does not take over the management of your accounts receivable, allowing you to retain control over your customers. In addition, unlike other factoring companies, which often require long-term contracts, the contracts with Boozt24 are cancellable on a monthly basis. This provides freedom and security, allowing you to continue growing and investing in your business with peace of mind. Choose traditional factoring with Boozt24 and enjoy even more benefits and cost-effective collaboration!
- Your contract can be terminated on a monthly basis.
- You do not have to give a private guarantee.
- We grow with you.
- You can continue to do your own debtor management.
As an SME entrepreneur, you are probably already familiar with the importance of timely and correct invoicing. But did you know that there are specific requirements that your invoices must meet? In this blog, we'll discuss why it's crucial to understand these billing requirements and how you can use them to your advantage.
Factoring, the key to working capital improvement. Discover how it provides immediate liquidity, reduces default risk, reduces administrative burdens, and more.