For many companies, factoring is a financing option worth considering, and can be used successfully in working capital management in combination with other instruments. “With factoring, the capital tied up can be reduced and liquidity generated through the assignment of receivables without having to raise debt capital,” explains Hannes Polit, Head of Working Capital Management at PostFinance. Factoring is often used in B2B sectors with fixed customer bases, such as in wholesale, industry or services. The two examples below from WCM consulting at PostFinance illustrate that factoring solutions can be considered for various reasons:
Factoring: assign receivables and generate liquidity
Generating liquidity by assigning receivables: Hannes Polit, Head of Working Capital Management at PostFinance, provides some examples and explains why the factoring financing instrument is also a good option during challenging times.
Example 1: Financing growth with factoring
A company from the HR services sector wishes to finance its growth without having to raise debt capital in the form of loans. It wishes to shore up a liquidity gap before embarking on its growth strategy. HR service providers can often face such gaps as they have to pay their staff at the end of the month but only receive payment from their customers at a later date. PostFinance’s factoring solution flexibly provides the customer with liquidity to achieve growth.
Example 2: From loan to the sale of receivables
A company from the food industry wants to replace a 100% bank loan with a factoring solution. It hopes to obtain liquidity at reduced financing costs while also improving the balance sheet structure by reducing the level of debt. It can achieve this goal with PostFinance’s factoring solution.
Factoring in challenging times: a crisis-proof instrument
The coronavirus crisis shows that factoring and the assignment of receivables involved is also an extremely useful instrument during challenging times. “If customers increasingly pay later, this can cause liquidity problems for invoice issuers. Factoring helps overcome this hurdle – and without straining customer relationships,” explains Hannes Polit. It’s easy to understand why demand for factoring solutions rises sharply during such challenging times. He nevertheless underlines that factoring cannot resolve cost or profitability problems in operational business.
How can factoring be implemented?
It’s advisable for companies interested in factoring to arrange an individual and personal consultation, as offered by PostFinance. Here the options – such as disclosed vs silent factoring – are assessed, while challenges are also carefully analysed. “When evaluating a factoring case, it’s not just the credit standing of the debtors that matters, but also that of the factoring customer,” explains the Head of WCM at PostFinance. As with every other type of financing, the creditworthiness of the parties involved is also a key factor in determining costs when it comes to assigning receivables via factoring. “Experience shows that our factoring prices are also extremely competitive compared to traditional bank loans and sometimes even less expensive.”
Why sell receivables via PostFinance?
PostFinance provides tailored factoring solutions that enable companies to flexibly generate additional liquidity, while assuming the default risk on receivables. “Our financial institution with its reputation for dependability is a byword for first-class service. Our solutions are transparent and fair and provide our customers with outstanding financing options,” says Hannes Polit. Customers also benefit from a WCM knowledge community that has developed over the years with the Swiss WCM Summit, the annual WCM study and scientific collaboration with the University of St. Gallen.
About Hannes Polit
Hannes Polit is Head of Working Capital Management at PostFinance. He has a wealth of experience, having worked in management consulting in the financial sector for over 15 years – including at PwC and IBM. His specialist fields are financing, international accounting and mergers and acquisitions.