One of the main problems that small and medium enterprises have Spanish (SMEs) are the pending payments. According to the latest Bulletin on Delinquencies and Business Financing of the Cepyme employers’ association, 60% of SMEs have unpaid bills and 22% of these exceed 10% of their billing.
To maintain its activity and to be able to survive, liquidity is essential. And just one fact: the 90% of the business fabric are SMEs. In other words, the problems related to this situation affect a very important part of the Spanish economy.
Find a alternative financing service that gives them the possibility of obtaining a immediate paymentwithout having to wait for the payment order to be issued, is one of the main challenges faced by many of them.
What is ‘factoring’ and what is its origin?
One of the best solutions to achieve immediate liquidity is the ‘factoring’. With this system, SMEs sell their pending invoices to a financial entity that anticipate the collection of the samein addition to providing other services such as risk coverage for non-payment.
The ‘factoring’ is, in short, a circulating financing instrument that gives liquidity to companies that sell on credit. In this way, the client always receives the money at the same time that the invoice is issued.
Advance payment is a service whose origin dates back to the XVII centurygiven the need for British manufacturers to guarantee their profits before exporting their products to USA.
The types of ‘factoring’
There are currently two types of factoring: with recourse and without recourse. The main difference is in the debtor’s default risk, and who assumes it.
‘Factoring’ ‘without recourse’. In it, the financial entity to which the invoices are transferred is the one that assumes the risk in the event of a return or non-payment and is directly in charge of claim procedures. This option is the most requested by small and medium-sized companies, since it provides the security that they will be paid for their work. It is very suitable, especially for growing companies who cannot afford to accumulate defaults that could weigh them down. In Spain, 85% of operations are carried out using this method.
‘Factoring’ with recourse. In this case, it will be the company that issues the invoices that assumes this risk of insolvency on the part of the debtors. This option is very suitable for companies that sell to debtors with proven solvency or the public sector and, therefore, do not want to pay a commission to insure that risk.
What advantages does factoring offer?
The first, and main objective of the factoringes payment in advance of credit sales. In this way, the company does not have to wait for its client to issue the payment order, since it can collect its sales Immediatelyfinancing the amount thereof.
Second, companies keep their financial capacity intact, since its CIRBE is not increased. This allows them to have greater negotiating power against banks.
Factoring provides different tax advantages. Financial expenses are deductible from corporate income tax, according to the terms established by law.
With this system it is also better balance ratiossince the non-recourse modality allows companies to reduce customer balances, thus improving their payment terms.
In addition, financing in this way also supposes a saving time and resources in the management of invoice collection.
Lastly, the possibility of advancing the collection of invoices allows companies to assume a greater commercial risk vis-à-vis your debtors, which translates into a increased sales.
Banking or non-banking ‘factoring’
The ‘factoring’ can be requested in banking and non-banking entities. Depending on the decision, each of these options will offer some features or others.
The banking method is carried out through a bank, a banking entity that is supervised by the Bank of Spain and, therefore, is governed by certain capital and solvency requirements. In this type, the client or assignor increases its indebtedness with the entity. In addition, companies will be able to increase their treasury, in exchange for a percentage of the total amount, as interest.
The non-bank method is one in which the entity that performs it, as its name suggests, is not a bank. Therefore, they have the main advantage of do not occupy bank lines of risk. These private entities pay the money from their invoices to the company, providing immediate liquidity and allowing for a more agile and simple management of operations.
A service that grows
In Spain, the factoring sector in Spain grew by 26.1% year-on-yearl Until March 2022, according to the Spanish Factoring Association (AEF), reaching a credit volume of 28,504 million euros in this date. This is equivalent to 12% of Spanish GDP and helps determine the degree of maturity of this financial option.
By business branches, national ‘factoring’ already represents 70% of the market and registered a figure of 19,967 million euros (19.09% more than a year ago); for his part, international factoring grew by 54.3%up to 8,537 million euros.
Factoring is one of the services most demanded by companies for working capital financing. It is, therefore, a short-term financing service for all types of companies that generate accounts receivable.
Gedesco, the largest non-bank financing company in Spain, has always offered the ‘factoring’ service in its product portfolio. With More than 20 years of experience and with a turnover in 2021 of 1,724 million euros, it has helped the growth of many SMEs.
“In 24 hours we cover the needs of the client, without the limitations that banking has. In this way, we can avoid those disorders that involve charging in 60, 90 or even 120 days & rdquor ;, explains Benedict Jimenezcommercial director of Gedesco.
In this way, companies that decide to hire the ‘factoring’ service can find out about the conditions through the company’s website.
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