The old prejudice that factoring clients have a low level of creditworthiness or are even “in trouble” can still be encountered in the factoring market. However, factoring companies pay special regard to their factoring clients’ sound customer and account debtor structure, last but not least out of their own financial interests. Potential new factoring clients will therefore be thoroughly vetted by the factoring company before entering into a factoring contract with them. Only healthy enterprises with recoverable/collectible receivables, solid creditworthiness and profitability are suitable for a long-term factoring relationship. Factoring has rather become a quality trait in customers; clients who use factoring assert this with increasing self-confidence.

The conditions and costs of factoring vary, depending on the industries involved, the turnover, the debtors, etc. Generally, the factoring company will charge the factoring fee and the financing. The factoring fee covers the services, the default risk coverage, the debtor and receivables management, etc. Additionally, the client pays financing costs which are often aligned with overdraft costs. In contrast to bank lending, factoring offers extensive protection against default as well as receivables management, including debt collection services, if the factoring client so wishes. Due to being immediately provided with liquidity, the factoring client can gain additional revenues such as cash discounts and special conditions, which often even exceed the costs of factoring. Therefore, a direct comparison of factoring and bank lending is only possible to a limited extent.

No, factoring is not the same as debt collection. Debt collection is about the collection of outstanding debts. Factoring helps the clients generate liquidity with an innovative financing instrument. The factoring clients‘ and debtors‘ credit ratings are regularly checked in advance; thereby, our members‘ clients have a higher level of creditworthiness than „debt collection customers“. Hence, factoring differs considerably from debt collection: “Factoring purchases “just” the good receivables, debt collection takes care of the addled debtors.”

No: The current ranges of factoring show that especially during the last years, the factoring industry has repeatedly provided innovative solutions for SMEs. Minimum values or turnovers for providing factoring services to clients have been lowered considerably in the last few years, also to attract new clients.

Enterprises gain time and financial latitude, they strengthen their position vis à vis their suppliers and principal banks, and late payments or even non-payments cease to be a concern. Further advantages are: improved liquidity due to the reduction of outstanding accounts receivables, savings in purchases through cash discounts and rebates, complete protection from non-payments and defaults, savings in the area of debtor or receivables management, continuous credit ratings of debtors, discontinuation of payments for credit insurance.

Factoring is a modern form of financing which can be adapted to the needs of the factoring client. The forms of factoring vary, based on the different requirements and wishes of the factoring clients regarding amount of financing, maturity, risk protection, extent of receivables management and possible other service aspects.

In the case of Inhouse Factoring, the entire debtor and receivables management remains with the factoring client on trust for the factoring company. The factoring company fulfills its financing and credit protection roles. Therefore, this form of factoring is particularly suited for clients which have a solid debtor management at their disposal.
Standard factoring includes not only financing congruent to the client’s turnover, but also extensive default/credit protection and receivables management. Due to the comprehensive scope of services provided by the factoring company, this form of factoring is also referred to as Full-Service-Factoring.
With maturity factoring, the factoring clients use the advantages of receiving full credit protection as well as relief with a view to receivables management, but they forego the immediate payment of the receivables purchase price, i.e. the financing effect of factoring. Maturity factoring makes financial planning easier for the clients as they can agree on certain payment dates with the factoring company which are independent from debtors’ payments.
The remainder is classified as other kinds of factoring and includes e.g. intragroup turnovers, ABS-like products, turnover from not purchased receivables and refinancing other factoring companies.
For more information on the factoring services provided by our association’s members, please refer to our brochure “Who factors what?” (“Wer factort was?”).

Factoring without recourse entails the factoring company assuming the default risk, i.e. the full credit protection. In the case of factoring with recourse, the factoring company does not take on the default risk and hence does not offer credit protection, either. Another distinction can be made between factoring relationships where the debtors are informed of the sale and assignment of the receivables and are consequently asked to effect their payments to the factoring company, and factoring contracts which entail that the debtors are not notified of the sale and assignment of the receivables to the factoring company.
With export and import factoring, factoring companies offer factoring to both national and international or cross-border trade. When national enterprises (exporters) use the services of a factoring company in Germany for their cross-border business, this is referred to as export factoring. In contrast, foreign enterprises using German factoring companies for their import business result in import factoring.

Factoring is a suitable form of financing for many, though not for all industries. It is a modern instrument of receivables financing which generally requires completed provisions of goods and services by the factoring clients towards their customers, the debtors. Our members indicate the following as their main industries: Trade/trade negotiation, manufacturing of metal products and machines, the nutrition sector, the manufacturing of chemical products and other processing trades, vehicle construction, manufacturing of electronics and electronic components as well as the paper and printing
Factoring receivables from the healthcare and building sector has also become increasingly important over the last few years.