If you have your own company, the administration is also part of that. That is not a favorite part for everyone. Do you think so too? Have you ever thought about traditional factoring? You outsource your credit management completely and you no longer have to think about current invoices. How that works? We are happy to explain it to you.
What is Traditional Factoring?
With traditional factoring you hand over your entire credit management to a factoring company. Often these types of companies apply a condition that your company exists for at least 3 years. You pay factoring companies a fixed amount of your turnover or a small percentage thereof. Traditional factoring is also seen as another option for a bank loan. The costs of traditional factoring are not very high, often between 1 and 2 percent. The only thing is that the risk lies with you, not with the factoring company.
What is the difference between traditional factoring and other types of factoring?
There is a distinction between the different types of factoring. In this way you bear the risk yourself with traditional factoring. Your turnover is taken into account, while that is not the case with American factoring, for example. With reverse factoring, your turnover is not considered either, but the company looks at the creditworthiness of the debtor. With traditional factoring, you outsource your entire credit management. With American factoring you can choose how much and what you outsource. In addition, with traditional factoring you are tied to a long-term contract, while that is not always necessary with other types of factoring. This kind of factoring is particularly suitable for SMEs or large companies. Where with reverse and American factoring you often get paid 100 percent immediately, with traditional factoring this is around 80 to 90 percent. The rest, minus a percentage of the turnover, is paid after the customer has paid the invoice in full.
What are the advantages and disadvantages of traditional factoring?
There are, of course, pros and cons to traditional factoring. You can read which they are below.
- The costs are lower than with, for example, American factoring;
- Less strict requirements for debtors.
- You must meet a turnover requirement;
- Often your company has to exist for more than 3 years;
- You are bound by a longer-term contract;
- The risk is yours.
- Your company has existed for at least 3 years;
- 80-90% paid out immediately (within 24 hours);
- Long-term contract;
- Risk is yours;
- You outsource your entire debtor administration;
- Costs: small percentage (1-3%) or fixed amount of your turnover.
Do you not yet know which party you want to work with? It is of course quite difficult to make the right choice. You can request quotes from multiple parties on our website. This way you can see which factoring companies have which advantages. That way you know which airline suits you best.