What is factoring?
Factoring is a simple and flexible instrument for the financing of accounts receivable, which does not require the pledge of assets. The financing of invoices is based on the transfer of a claim (debt and receivables) to the factoring company for a certain fee.
Why choose factoring?
In order to ensure the speedy transfer of cash to the client, factoring does not require any other collateral because the invoice itself acts as a collateral.
BENEFITS OF FACTORING FOR THE SELLER
- Possibility to receive financing without the pledge of assets.
- Improved cash flows as the receivables are replaced by cash in seller’s account.
- Increase in sales (limited financial resources and long collection period of receivables hamper the growth of turnover).
- Effective collection of money reduces the proportion of doubtful receivables.
- The administration of receivables is transferred to the factoring company along with the claim.
- Enables longer payment terms, which benefits both the buyer and the seller.
BENEFITS OF FACTORING FOR THE BUYER
- Allows the supplier to postpone the payment date.
- Helps to attract smaller suppliers because funding is insured.
- Facilitates planning of cash flows.
- Increases financial liquidity of the company and unties working capital.
How do I get funding by factoring?
All it takes is four simple steps:
- The seller sells the goods and/or provides the services to the buyer.
- The invoice issued to the buyer is also submitted to the factoring company.
- The factoring company transfers an advance payment to the seller, which may be up to 100% of the invoice amount, minus the interest and related fees.
- After the factoring company receives payment from the buyer, the balance, if any, is transferred to the seller.
How is SME Finance factoring exceptional?
Essential notes on the services of SME Finance:
–We provide funding for up to 100% of the invoice
–We make an offer in 1 hour
–Our financing limit is from EUR 10,000 to 5,000,000
–We offer competitive interest from 0,5% (for 30 days)
–We provide invoice financing for up to 180 days
–We can offer factoring derivatives (reverse, export, stock, confidential factoring)
–We provide financing to clients who have loans from other financial institutions.
Does SME Finance provide funding to buyers with a bad credit history?Usually not. In such case, we can offer alternative modifications of factoring.
Is factoring expensive?The interest for standard and low-risk factoring starts at 0,5% for 30 days. Other factoring schemes are more expensive, but they are not available from other factoring market participants, so our rates are competitive with regard to existing alternatives.
How are SME Finance factoring services different from those offered by banks?Banks generally offer three types of factoring: domestic, export and collection factoring. SME Finance can offer a range of modifications of factoring, which are described in more detail in the Services section. It is also worth mentioning that when considering a potential factoring transaction, a bank carries out a detailed evaluation of both the seller and the buyer, while SME Finance is more lenient in evaluating both parties to the transaction.
Can a company with financial obligations still use factoring?Yes. Depending on the factoring scheme, risk assessment will be more liberal.
Will other credit institutions or partners know that the company is using SME Finance factoring?Only in the case when the client requires so. Other financial institutions will not be informed about the contract signed.
What can SME Finance offer apart from factoring?SME Finance specialists provide advise on long-term and short-term financing, financial management and investment. The team of SME Finance comprises former bank employees with more than 10 years of work experience with large, medium and small enterprises in Lithuania.
How is factoring different from invoice discounting?Factoring is prompt funding of working capital with an obligation to receive financing for all or the majority of invoices. This is a service most often provided by banks. Invoice discounting is a service for business providing funding for specific invoices submitted without commitment by long-term contracts. The invoices are financed according to the client’s need, which may be changing.
How is factoring and invoice discounting different from a business loan?When providing factoring or invoice discounting services, the client’s invoices for a concluded transaction with the buyer are financed due to long payment terms in order to ensure stable cash flow and working capital in the company. Business loans are intended for funding according to the existing or future cash needs by implementing investment projects, acquiring fixed assets or shares, refinancing bank loans, etc. There can be a variety of financing purposes.