Ideal factoring alternative
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Alternative to restrictive debt financing such as bank loans.
Alternative to dilutive equity financing.
Trade future sales for immediately available growth capital.
When companies sell their outstanding receivables, this is called factoring. A third party always acts as the recipient - the factor who settles the open invoice as quickly as possible and charges a fee for doing so, which is deducted from the total.
This is a typical factoring process – in simple terms:
Like most forms of financing, factoring has advantages and disadvantages.
The advantages include:
In addition to the apparent financial aspects, the last point is interesting: Companies that sell receivables can, for example, grant their customers longer payment terms without risking liquidity bottlenecks.
On the other hand, this can turn into a disadvantage. With factoring, customers come into direct contact with the factor - some interpret this as mistrust on the company’s part, which can cause lasting damage to the customer relationship.
In addition, only existing open invoices can be sold. Future invoices that only arise in the following months cannot be considered.
Costs are another reason why many entrepreneurs look for factoring alternatives. Because metrics such as annual sales and average invoice volume are contributing factors, fees are very opaque. They are made up of items such as processing and verification fees and reinsurance costs. In addition, there is a factoring fee and often interest.
You have many options for financing your business: through bank loans and credits or investment solutions such as venture capital. However, these methods are either restrictive or dilutive because you give up shares and control.
Factoring is a financing option that does not use traditional equity or debt. Instead, it uses a company's revenue. This fundamentally positive solution also applies to re:cap's revenue financing – it specializes in the subscription economy as a particularly flexible, fair funding without dilution.
Exchange future revenues for instant capital - without dilution.
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The definition of factoring is simple: to quickly receive the money from open invoices and generate liquidity, companies hire a factor who settles the outstanding payments as an advance and takes over the accounts receivable management. It is therefore a sale of receivables.
The factor checks the verity of the invoice and the creditworthiness and default risk of the debtor. Then the factor pays the majority of the outstanding invoice amount to the contracting company, usually within 48 hours. After the factor has collected the receivable from the debtor, the company receives the remaining gross amount that the factor has retained as security.
Anyone interested in factoring should take a closer look at their options because there are differences. In recourse factoring, the factor bears the full risk of default. Less secure - from the point of view of the selling company - is non-recourse, in which there is no protection against bad debts. If companies do not want their customers to know about factoring, they can choose the silent option.
Since there is a large number of factoring companies, companies can quickly end up with a provider whose credit rating itself is weak. However, the performance of a factor is not always directly apparent. In the worst case, the assigned factor goes insolvent and the company loses a lot of money. In addition, some customers see it as a sign of mistrust if it is not the company providing the service that demands payment but a third party unknown to them - this could be circumvented by silent factoring.
There is no single answer to this question because the fees are very opaque - based on various key business figures. In addition, the total costs are not only made up of a clearly defined factoring fee but of several items. Interest often accrues as well.
TexSince factoring is revenue-based financing, other revenue financing options are also great alternatives to factoring. This is also true for re:cap's solution - it is tailor-made for companies with a subscription business model that generate predictable, recurring revenue.t
