.svg)
.svg)
4 Minute Read
August 27, 2024
Why is factoring classified as an alternative financing method?
Factoring is considered an alternative financing method because it cannot be categorized as either equity or debt financing. In factoring, a company sells its receivables to a factor, who in return provides immediate liquidity. This differs from traditional financing methods like bank loans, where a company must either give up equity or take on debt. Therefore, factoring offers companies an additional way to increase their financial flexibility without changing ownership structures or incurring additional liabilities.
What forms of factoring are available on the Aequitex platform?
- (True) Non-Recourse Factoring: The factor takes over debtor management and the full risk of default (credit risk). This provides maximum security for the factoring client. Aequitex contacts the debtor of the factoring client.
- (False) Recourse Factoring (silent factoring): Here, the default risk remains with the factoring client, and the assignment of receivables is not communicated to Aequitex’s debtors.
- Reverse Factoring: The factor pays the suppliers of the factoring client directly and takes over the receivables. This improves the liquidity of the factoring client and their relationship with suppliers due to timely payment of obligations.
What advantages does an SME gain from factoring through Aequitex?
By factoring through Aequitex, the entrepreneur gains time and financial flexibility, strengthens their position against suppliers and banks, and is no longer burdened by payment delays or potential defaults from their debtors.
Additional advantages include:
a) Liquidity Generation and Leverage Effect:
By selling open receivables, SMEs gain immediate liquidity, which increases flexibility. This liquidity can be used to repay debt, improving the leverage effect, or to finance growth projects, potentially increasing profitability in the long term.
b) Pursuit of Independence:
Unlike traditional bank loans, factoring offers the opportunity to maintain financial independence. Aequitex acts neither as a creditor (except in recourse and reverse factoring) nor as a co-owner, allowing SMEs to retain their decision-making freedom and control over the business.
c) Balance Sheet Effects:
Factoring results in an asset exchange on the balance sheet: receivables are converted into liquid funds, which improves the equity ratio and reduces the balance sheet total. This allows companies to demonstrate their financial stability, which can positively affect their rating.
d) Impact on Ratings:
Improved liquidity and lower indebtedness lead to better ratings, which in turn can lower the costs of future debt financing. Institutional investors prefer companies with good ratings, facilitating access to capital.
e) Competitive Advantage:
With immediate liquidity influx, SMEs can offer their customers longer payment terms and accept larger orders, significantly enhancing competitiveness.
f) Cost Savings in Procurement through Discounts:
With the liquidity gained from reverse factoring, SMEs can pay their invoices faster and thus benefit from discounts. This reduces the overall procurement costs and improves the company's margins. Additionally, it strengthens relationships with suppliers, as the company is perceived as a reliable and prompt payer.
g) Risks (Credit Risk):
Factoring through Aequitex provides the advantage that the credit risk—the risk of default—is assumed by the factor. This significantly minimizes the financial risk for the company.
h) Debtor Management:
Aequitex not only handles financing but also debtor management (only in non-recourse factoring). This includes dunning and collection, reducing the administrative burden for SMEs and leading to cost savings.
i) Fair and Transparent Access to Liquidity:
At Aequitex, SMEs can upload invoices starting from CHF 1,500. They receive an offer with an individual risk discount per invoice, which is deducted from their payout amount. This discount must be confirmed by the SME selling its invoice before the invoice can be offered for sale on the Aequitex marketplace to the investor community. Only after the SME has successfully sold its first invoice to an investor through Aequitex do we charge a small annual fee of CHF 240. They can sell as many invoices as they want through our marketplace.
j) Simple Process - 100% Online:
Aequitex offers a simple online process for selling SME B2B receivables. Online support is readily available for any questions.
Conclusion
Factoring through Aequitex represents an attractive alternative financing method for small and medium-sized enterprises (SMEs), offering a variety of advantages. Through, for example, immediate liquidity influx, improved balance sheet structure, or the assumption of debtor management (only in non-recourse), companies can significantly enhance their financial flexibility and stability. Additionally, it enables SMEs to operate independently of traditional lenders, increase their competitiveness, and improve profitability in the long term. The simple, fully online process provided by Aequitex makes factoring particularly accessible and transparent, facilitating access to liquidity.
.jpg)
.jpg)
