Is factoring an alternative to bank financing?

Factoring is a tool used to manage credits professionally.

Factoring is a management aid and financial technique, aimed at satisfying companies' requirements concerning the management of supply credit.

Factoring includes various services:

• administration, management and collection of credits
• legal assistance with debt collection
• credit scoring of customer
• advance of credits before relative due date
• transactions guaranteed subject to collection

Factoring is not therefore an alternative to bank lending, but is certainly a financial component which can be used to complement other sources of financing at the disposal of the company.

What are the main advantages of factoring?

Speed and security in the allocation of funds, help with credit management, guarantee of the company's credits subject to collection, are the principal advantages of factoring appreciated by customers.

These are the three main elements of satisfaction indicated by companies in the survey about requests for factoring. And these elements indicate that in the majority of cases there is a more than adequate level of satisfaction.

From a financial point of view, in particular, always according to the companies, factoring allows them to satisfy funding requirements of a temporary nature, to optimise collections planning, and to facilitate turnover growth.

Factoring is however a service with a high level of personalisation, in respect of the characteristics and needs of the customer.

Does the use of factoring signal that a company has financial troubles or difficulties with client relationships?

On the contrary, the transfer of credits within a factoring relationship is a normal fact of life for companies and is, in fact, a sign that the supplier company is capable from a "management" viewpoint, in other words it handles its own credits with care and also the connected planning of cash flows.

The EEC has recommended that Member States facilitate the spread of factoring within companies, as this is a useful tool for a more efficient management of credits which are the object of commercial transactions.

Those who do not know much about factoring, tend, in some cases, to think of it as a marginal financial tool and/or for the recovery of problematical credits and as a consequence see a recourse to factoring as a sign of financial problems and deterioration in credit portfolio, associating this basically with companies in difficulty.

In any case the truth is that only a small part of companies have had problems with their customers after these have been assigned within the scope of a factoring relationship.