Factoring
Factoring is a form of financing whereby a company assigns its outstanding receivables to a factor in exchange for an immediate advance on the invoice amount.
Factoring involves the sale of trade receivables to a specialized financial institution, the factor. The enterprise typically receives between 70 and 90 percent of the invoice amount immediately, while the factor assumes responsibility for collection and, where applicable, the credit risk.
This method is relevant for companies facing extended payment terms, as it enhances liquidity and reduces reliance on debtors. In practice, factoring is primarily employed in trade, transport and industry, with the factor often also providing debtor administration services.
Legally, factoring rests on the assignment of receivables, as provided for in the Civil Code. The agreement between the enterprise and the factor determines whether the arrangement constitutes true factoring (involving a transfer of risk) or fictitious factoring.
“The transport company made use of factoring to improve its cash flow and to enable direct investment in new vehicles.”
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