By using debtor financing you maintain the good relationship with your customer, but you can outsource the debtors. This way you have enough time and space in your company to get started with the things that really matter to you. Below you can read what debtor financing entails, what the advantages and disadvantages are and what costs are involved.
What is debtor financing?
What exactly is debtor financing? With debtor financing you receive money (financing) based on the outstanding balance to customers. Customers are part of the working capital of a company. You can therefore also say that debtor financing is a form of financing for working capital. 1. Current Credit Account In this case you choose to outsource debtors to, for example, the bank. A current account credit is usually used by the bank. That is the simplest. This way you will receive a credit limit on your business account. The amount of this credit depends on the size of your debtors and / or stocks in the last annual overview of your company. Not every bank uses the same percentage. You can often assume that a bank wants to finance 40 to 50 percent of the value of outstanding debtors. If you have insurance against non-payment, this percentage can increase to about 70 percent. Read more 2. Factoring debtors Another way of debtor financing is factoring. Factoring is also a form of financing. Factoring companies buy your invoices. You hand over your debtor management. They will pay you part or all of your outstanding invoice within 24 hours. This way you can continue with your company without having to worry about money. The factoring company goes after the invoice with the debtor. Factoring debtors improves your cash flow and you receive an immediate payment of your invoices. However, you do pay a fee to the factoring company. In both ways of debtor financing, the claim is taken from your customers. read more
What are the costs of credit management?
The costs of debtor management depend on how you outsource your debtor financing. Do you opt for factoring? Then you have to choose between traditional factoring , American factoring or reverse factoring . The cost of factoring is a percentage of your turnover or invoice. This is a bit different with a current account credit. You pay interest on the loan you have taken out. You agree a fixed interest rate with the bank on the part of the credit limit that you actually use. That can be 1 percent, but also 12 percent. In addition, you also pay treatment costs. You pay this for the advice and the processing of your funding request. The amount of these costs depends on each bank. So the debtor management costs depend on which option you choose.
Advantages and disadvantages of debtor financing?
There are various advantages and disadvantages involved with debtor financing. We discuss them by way. Advantages of overdrafts
- You can immediately withdraw money from your account;
- No creditworthy investigation is conducted;
- You can often use free advice;
- Flexible and easy.
Disadvantages Overdraft Credit
- The costs are often relatively high;
- You spend money more easily, without even noticing.
Advantages of accounts receivable factoring
- You will be paid a large part or the total amount of the invoice within 24 hours;
- Often the risk lies with the factoring company;
- It's flexible;
- Depending on a factoring company, you do not pay too high costs;
- Outsourcing debtors saves you a lot of time and effort.
Disadvantages of accounts receivable factoring
- There are costs associated with factoring;
- The maximum credit available is limited;
- Not all of your invoices are eligible for factoring.
Before you make a choice for debtor financing, it is wise to obtain information. Enter your details on our website to see which bank or which factoring company is right for you.