How much does factoring cost?

Factoring is a short-term financing method that allows companies to convert their trade receivables into cash. It is a cash management solution widely used by companies to improve their cash flow and ensure financial stability (WCR, etc.). However, as with any financial service, it is essential to understand the costs associated with factoring.

How Factoring Works

Before we get into the details of the costs, let’s briefly review how factoring works. When a business sells goods or services to a customer, it issues an invoice that represents a receivable from that customer. Instead of waiting for the customer to pay the invoice when it’s due, the business can assign that receivable to a factoring company for a fee, allowing it to reduce its payment terms and free up cash.

In exchange for the assignment of receivables, the factoring company advances a percentage of the invoice value to the company, typically between 70% and 90%. Once the customer pays the invoice on the due date, the factoring company pays the remaining amount, less fees and charges.

Costs Associated with Factoring

When a business is considering using factoring as a financing solution, it is essential to understand in detail the costs associated with it.

1. Service Fee : Service fees are typically expressed as a percentage of the total invoice amount assigned. They cover administrative and operational costs associated with managing receivables. These fees can range from 1% to 5%, although the precise range may depend on the market, competition and size of the company.
2. Financing Fees : Financing fees are the interest paid on the advance granted by the factoring company. They are calculated based on the agreed interest rate and the period for which the advance is outstanding. The longer the period of the advance, the higher the discount fees will be. It is crucial to know the interest rate applied and to calculate the total cost of the discount fees over the term of the contract.
3. Management Fees : Some factoring companies charge additional management fees for services such as verifying customer creditworthiness, monitoring payments, and managing and collecting accounts receivable. These fees may be fixed or proportional to the amount of the receivables.

Key Figures of Factoring

1. In 2021, the global factoring market was estimated at around € 3.6 trillion, reflecting its growing popularity among businesses.
2. According to the Association of Financial Companies (ASF), in France, the total volume of factoring in 2020 was approximately 341 billion euros .
3. Small and medium-sized enterprises (SMEs) represent a significant share of factoring users, as it allows them to access liquidity quickly without resorting to traditional bank loans.
4. Factoring is often used in industries such as manufacturing, distribution and services, where customer payment cycles can be long and therefore create significant cash flow gaps.

Factoring with Karmen: Karmen Factor Karmen Factor allows companies to finance their invoices and receive payment instantly . Unlike traditional factoring, Karmen does not buy the invoice from you, but finances it. Consequently, Karmen does not intervene at any time in your customer relationship and this method of financing remains invisible, like Dailly assignment financing. How does it work? After analyzing your creditworthiness, our credit team provides you with a line of credit that will allow you to finance as many invoices as necessary, up to the limit of the set amount. The advantage of this approach is that once the information necessary for the analysis of your business has been received and analyzed by our team, you can then obtain the financing you need for as many invoices as necessary . Once the invoice is sent to the customer, the company receives the funds directly within 48 hours allowing it to cover its working capital requirement (WCR) and the reimbursement of your financing is done automatically once the invoice is paid ( simple and fast ). Factoring is a serious solution for companies looking to optimize their cash flow and maintain their financial stability. However, it is important to consider the costs associated with this financial service. Service fees, discount fees and other fees must be carefully evaluated to determine if factoring is a profitable option for your company. Finally, Karmen Factor seems to be the solution allowing companies to finance their invoice simply and quickly without jeopardizing their customer relationship.