Are you a trader and do you spend too much time charging your customers for not paying on time? Or, the overdraft is tied to the breakpoint because your business needs to be bank for your customers? Then factoring , or billing, may be interesting to you.
Bad payers are a growing problem for Danish companies and entrepreneurs, and often one has to expect to have the money out longer than one’s payment terms actually say. If, for example, you have one month’s time to pay for your invoices, you can easily risk having to wait 5-6 weeks for your debtors to get together to pay. It can be something of an ordeal, especially for the smaller companies. Firstly, you have to spend a lot of time moving your customers, and you do not have the money that you really expect.
A tool to avoid the scenario that the overdraft facility is empty may be to use factoring, or in Danish: invoice borrowing. In practice, it is done that all identical invoices are sent to a factoring supplier, who then immediately pays a percentage of the invoiced amount. The rest then stands at the factoring company until the invoice is paid. If, contrary to expectations, you do not receive payment, you will be offset what you have received in one’s deposit. However, there is also a greater chance that you actually end up getting your payment, because factoring providers are driven to collect the outstanding amount. It turns out time and time again: If you are proactive when it comes to the recovery of extras, then there is a greater chance that you will receive payment, rather than those who just let it stand.
Factoring combined with invoice administration
Often, factoring does not stand alone. It is very common that at the same time you let the factoring company account for your entire debtor accounts. All you have to do yourself is to bill, so factoring for the rest, from checking deposits, moving and possibly taking further steps, if your customer is unable or unwilling to pay. At the same time, you can also get credit ratings for its customers, so that you do not enter into agreements with known bad payers.
This is how factoring takes place
If you have an agreement on factoring, the process is typically as follows:
- You invoice the customer and send him an invoice
- A copy of the invoice is sent to the factoring company
- When the factoring provider receives the invoice from you, it is possibly made. a random check, and then between 70-90% of the invoiced amount is immediately paid out.
- Your customer pays his invoice and the money goes into the factoring company account.
- The rest of the amount is then paid to you.
- If the customer does NOT pay, factoring shifts the company.
- Only when a case is abandoned is set off in your security account with factoring.
The above procedure applies to most known Danish factoring providers. Obviously, there may be deviations and there may be differences between the additional services associated with the agreement. The benefit to you is that you already have the bulk of the invoiced amount in your account when billing. So you do not have to wait for the payment deadline to get payment. It gives you great confidence that you do not have to tighten your overdraft facility to the breaking point.
If you also associate invoice administration, you are also free to spend time moving your customers and making payments. You can spend your time effectively on what you are good at and let factoring about what they are good at – Namely, recovering your money for you.
What does factoring cost?
Factoring is of course not free. Often the price consists of one or more sub-elements:
- You must pay interest on the money you receive when you bill. This varies from company to company
- In return, you get interest on the money that stands as security at factoring.
- If you use invoice administration, this typically costs 2000-5000 a month.
- If you want a credit rating of your customers, it also costs a fixed fee per person. walk. Typically 200-400 kr.
There is no doubt that factoring can be a good idea if you have problems with customers who do not pay on time or you simply want to get rid of the hassle of having to keep track of deposits.