It is precisely in times of crisis that many companies turn to factoring as a financing alternative for the first time. This results in long-term and healthy business relationships. Many people have the impression that factoring is only a viable financing model in times of economic uncertainty. This is not true. Factoring is a sensible and sustainable source of financing, especially for companies with a strong credit rating and a sustainable position.
Advantages of factoring compared to traditional loans
Factoring is a form of financing that directly increases a company's liquidity by selling outstanding receivables to third parties. Factoring offers various advantages, and not only from the supplier's perspective. In contrast to conventional financial products, factoring is directly linked to turnover and default risks are spread across the entire debtor portfolio instead of being bundled at a central point, as is the case with a classic credit line, for example. Risk concentrations are systematically recorded, evaluated and tracked.
Easy access to the capital market
This fact makes it easier for small and medium-sized companies in particular to access the capital market through factoring. The direct inflow of capital from the liquidation of outstanding receivables means that investments can be made in IT infrastructure or COVID-related hygiene concepts, for example, at short notice. In the words of Michael Ritter, Chairman of the Board of the "Bundesverband Factoring für den Mittelstand", "the business model of bank-independent financing and rapid provision of liquidity offers SMEs a benefit that is particularly in demand in times of economic restart."
Sufficient credit capacity
The continuous availability of sufficient credit capacity enables suppliers and financial experts to act now and jointly set the course to get through the crisis unscathed and secure solid business models in the long term. Against this backdrop, securing supply chains by extending the German government's credit insurance umbrella is in the interests of the economy as a whole.
Our conclusion
Factoring is of great economic importance. Securing receivables through trade credit insurance is not only hugely relevant in times of crisis.
NAVAX is continuously working on the further development of the industry solution "HENRI for Factoring".
