it’s all in the making

The bulk of trade financing in France is generated by bank loans. This stems from both the low level of company capital and settlement delays between the companies. In terms of short-term loans, banks today almost exclusively offer factoring contracts. Overview of factoring and its opportunities.

The reason for factoring is that this type of credit is backed by invoices, and it presents much less risk to them (from the banks’ point of view) than other forms of credit (overdraft, cash line). Businesses often have no choice but to replace it.

Factoring is generally relatively expensive. This includes a commission for the service, then a commission on uses. The cost is very high as the bank never finances 100% of the invoice. The amount usually varies between 60 and 90%.

Since the bank will collect 100% of the invoice, it has a cash cushion in case it is not paid to you. So it is important to be well prepared. Let’s see the main points.

Your invoice must be “solid”

This means that the chain: Order, Invoice, Delivery is completely in place. The order and delivery note must be signed by the customers. 3 Documents should be consistent and easily accessible.

Lending rate and its implementation

Linked to the quality of invoicing is the credit note rate. If you have good credit, your credit rate is usually lower. This is good because a retention (guarantee account) is largely attached to it. Avoid the type of credit note that cancels the entire previous invoice, when in fact a partial credit note would have sufficed. However, if you must do so, establish a reliable process so that you can identify these assets and measure their true impact. If you also give discounts, try to do them within the invoice to show the net, rather than as part of a separate credit note. In the case where your asset is related to the volume of activity (eg RFA dispatched at the end of the current year in distribution), there is a different asset category.

That’s it, your order is guaranteed

Start your production. Then, you agree with the customer for delivery. You deliver the product you serve. It’s good, but it’s not enough. The customer must receive this item or service.

required documents

For goods, this is often a delivery note (B/L) or consignment note (LDV). This document should be fully signed by the customer so that it is actually in opposition to him. It should also indicate the contents of the delivery. For services, there are also other documents like receipt report which must be approved by the customer.

You need to manage the credit limit of your customers

The factor (the bank) wants you to have credit insurance. If you don’t have one, he’ll offer you his. In any case, he attaches great importance to the existence of a credit limit, which is updated regularly. These credit limits should be blocked. This means that when the customer’s outstanding balance and their order limit exceed, the orders are blocked by default. So you must act and take a decision: review the limit (temporarily or for a longer period), ask him to settle unpaid invoices, get him to pay in advance, or ask him to reduce his outstanding amount. wait

Managing customer follow-up is also very important

The bank is interested in the overdue rate (invoices not paid on the due date) and their distribution over time. It is common to find factor deductions for loans that are overdue by more than 60 days. That’s why you should organize your follow-up effectively. It should be fast and continuous. Follow up before the due date whenever possible, because the sooner you identify disputes, the better you’ll be able to resolve them to the customer’s satisfaction.

Manage Accounts Receivable Well

The observation is that it is essential to manage your receivables well in order to be in the best possible position to negotiate with your factor. This will also have a direct impact on the cost of factoring. This will reduce factor retention, and because you will get your customers money back faster. This will consequently reduce your recourse to factoring.

What we recommend is that you always review your customer processes before entering into a factoring contract. Since they are essential to the financial health of your company anyway, you should not hesitate to contact a specialist who knows both the issues of receivables and the expectations of banks.

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