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A popular alternative to factoring

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Stay flexible

Alternative to restrictive debt financing such as bank loans.

Finance fairly

Alternative to dilutive equity financing.

Grow fast

Trade future sales for immediately available growth capital.

Definition: what is factoring?

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:

  • A company invoices a certain service.
  • The factoring company checks the verity of the invoice.
  • The factor checks creditworthiness and default risk of the debtor.
  • The receivables are sold to the factor, which takes over the debtor management
  • The company receives 80% to 95% of the gross receivable.
  • The debtor pays the outstanding receivable to the factor.
  • The company receives the remaining amount of the receivable.

Factoring: advantages and disadvantages

Like most forms of financing, factoring has advantages and disadvantages.

The advantages include:

  • Better liquidity
  • Lower risk of default
  • Stronger credit rating
  • Reduced accounting burden
  • Optimized customer relations

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.

Factoring: What are the alternatives?

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.

Your business

You generate predictable, recurring revenue in the subscription economy.

Your funding

You use the expected revenues of a whole year already today.

Innovative factoring alternative

Smart revenue financing to sustainably optimize your cash flow.

Ideal factoring alternative

Exchange future revenues for instant capital - without dilution.

Guarantee liquidity, improve cash flow
Up to 60% of ARR as growth capital
Maximum flexibility, fairness and immediate availability
Funding for data-driven growth

With re:cap, we were able to get non-dilutive funding at an early stage which is great for every startup founder. The whole process was simple and fast, and we look forward to a long-term partnership in building Meisterwerk.

Bertram Wildenauer,
CEO and Co-Founder, Meisterwerk

While validating funding options to accelerate our growth we came across re:cap’s financing line and quickly realized it’s exactly what we needed: full flexibility and full control at attractive conditions. The process was transparent and fast (days, not months) which allowed us to focus on our core business.

Artur Hasselbach
CFO, Talentsconnect

re:cap has enabled us to get access to funding in an incredibly fast and transparent process. Also, I really like the business insights dashboard which helps us to understand and improve our funding terms. I would recommend every founder to look into re:cap as a financing partner.

Tobias Hagenau
CEO and Co-Founder, awork

For us as a company with recurring revenues from offering both hardware and software-as-a-service, re:cap's financing option is a great tool for cash flow management. In addition to that, the financing process was quick and uncomplicated.

Frederik Merz
CBDO and Co-Founder, ampere.cloud

In the first instance, we used the flexible liquidity buffer gained through re:cap to finance long-term marketing and sales activities that we would not have been able to tackle until later without re:cap. We are pleased to be able to continue using re:cap for flexible growth, for example to expand our sales team.

Dirk Brockmeyer
Executive Partner, Tabtool

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FAQs

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What is factoring?

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.

How does the selling receivables work?

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.

What types of factoring are there?

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.

What are the risks involved in factoring?

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.

What are the costs of 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.

What are the most popular alternatives to factoring?

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