How much does factoring cost?

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

How factoring works

For a thorough understanding of the factoring mechanism, it's important to understand its basic principles. When a company sells goods or services to a customer, it issues an invoice representing a receivable from that customer. Instead ofwaiting for the customer to pay the invoice when due, the company can assign this receivable to a factoring company for a fee, enabling it to reduce its payment times 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.

Factoring costs

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.

Factoring key figures

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) account for a significant proportion of factoring users, as it enables them to access cash quickly without recourse 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.

Faced with the diversity factoring solutions available on the market, it's important to choose the one that best meets your specific needs while offering the best cost-benefit ratio.

In addition to costs, it is essential to assess all the advantages and disadvantages of factoring in order to make an informed choice. It is against this backdrop that innovative new solutions have emerged to meet the specific needs of companies.

Factoring with Karmen

Karmen Factor enables companies to finance their invoices and receive payment instantly. Unlike traditional factoring, Karmen does not buy the invoice from you, but finances it. As a result, Karmen does not intervene at any point in your customer relationship, and this method of financing remains invisible, just like Dailly financing.

How does it work?

‍Afteranalyzing your creditworthiness, our credit team provides you with a line of credit that will enable you to finance as many invoices as you need, up to the set amount.The advantage of this approach lies in the fact that once the information required to analyze your business has been received and analyzed by our team, you can then obtain the financing you need for as many invoices as you need.
Once the invoice has been sent to the customer, the company receives the funds directly within 48 hours, enabling it to cover its working capital requirements (WCR), and repayment of your financing is automatic once the invoice has been paid(quick and easy).

‍Factoring is a serious solution for companies looking to optimize their cash flow and maintain financial stability. However, it's important to consider the costs associated with this financial service. Service fees, discount fees and other charges need to be carefully evaluated to determine whether factoring is a cost-effective option for your business. Finally, Karmen Factor appears to be the solution that enables companies to finance their invoices simply and quickly without jeopardizing their customer relationships.