Most Belgian SME's that turn to factoring have the same problem. The work is done. The goods have been delivered. But the customer hasn’t paid yet. Meanwhile, the bills keep coming: wages, suppliers, VAT.
Factoring isn’t a last resort. Plenty of healthy businesses use it to keep their cash flow and working capital under control.
What is factoring?
With factoring, also called invoice factoring, you sell your unpaid customer invoices to a factoring company. You get most of the money straight away. The factoring company then waits for your customer to pay. So you no longer have to wait 30, 60 or 90 days to get paid.
The 8 most common reasons to use factoring
1. Long payment terms leave you short of working capital
Your customers pay after 30, 60 or 90 days. Your suppliers want their money sooner. The business is profitable, but there isn’t enough cash to cover all the costs comfortably.
Common in: transport, wholesale, manufacturing, construction and business services.
2. Growth costs money before it brings any in
More sales usually means more stock, more purchases and more staff. The business is growing, but it has to pay those costs up front. The money from customers only comes in later.
Is a lot of cash tied up in stock? Stock financing can help too.
Common in: fast-growing SMEs, distributors, wholesalers and manufacturers.
3. Your bank won’t lend you more
The bank won’t increase your credit line. Or it wants extra security. Factoring can be an alternative. The financing is based on your unpaid invoices, not on extra guarantees.
Sometimes a short-term loan is a useful extra.
Common in: growing SMEs that have hit their credit limit or have little security to offer.
4. You have to pay suppliers before your customers pay you
You buy goods today and have to pay for them within 14 days. Your customers only pay after 60 days. You have to fund that gap yourself.
Supplier financing can also bridge that gap.
Common in: transport, international trade, wholesale and subcontracting.
5. Too much cash tied up in unpaid invoices
Customers are paying later and later. Or a handful of big customers account for a large share of your outstanding invoices. Factoring frees up that cash sooner.
Common in: businesses with large corporate customers and slow payment processes.
6. A big order or a new contract
A major customer places a big order. Great news. But first you have to buy materials, take on staff or pay subcontractors. More sales means you need more cash first.
Common in: industrial suppliers, construction firms, project-based businesses and exporters.
7. More breathing room without a new loan
Some businesses want more cash on hand without taking out a new loan or credit line. With factoring, the financing is based on invoices you’ve already sent.
Common in: businesses that want to keep a healthy balance sheet or keep their bank credit lines free.
8. Less admin and less risk on your invoices
With some types of factoring, the factoring company chases your invoices for you. You can often also be covered if a customer goes bankrupt and doesn’t pay. That saves time and limits your risk.
Common in: businesses with lots of customers, customers abroad or a small finance team.
Good to know: not every factoring contract includes the same things. Financing, collections and credit insurance are separate parts. You can choose them separately or combine them.
Factoring in Belgium: not just for businesses in trouble
Many Belgian business owners still view factoring with suspicion. Often it isn’t clear what it actually does for them. Yet plenty of financially healthy SMEs use it. They grow faster, rely less on their bank and keep a tighter grip on their cash flow.
Frequently asked questions about factoring
Is factoring the same as a loan?
No. With a loan, you borrow money and pay it back later. With factoring, you sell invoices you’ve already sent. You simply get money you’re already owed, but sooner.
How much does factoring cost?
It depends on your business. Your turnover, the number of customers, how well they pay and the services you choose all play a part. The higher your turnover, the lower the price tends to be. Every factoring company prices differently. That’s why it pays to compare.
Do I have to factor all my invoices?
Not always. Some arrangements cover all your customers. With others, you choose which customers to factor. The right option depends on your situation.
Is factoring suitable for small businesses?
Yes. SMEs of all sizes and in many sectors use factoring. What matters most is that you invoice other businesses and that your customers are reliable.
Why use Nextfactor rather than going straight to a factoring company?
You can contact and compare factoring companies yourself. Nextfactor is an independent adviser that works with several factoring partners. We know their terms. That helps you see faster which option suits your business best. Read more in Why Nextfactor?
Got another question? See all our FAQs.
Which type of factoring suits your business?
There are many types of factoring. Every provider works differently, with its own terms and prices. At Nextfactor, we compare what our factoring partners offer Belgian SMEs. That way, you find an option that suits your business.
Does any of this sound familiar? Get in touch or email info@nextfactor.be. We’d be glad to look at what would work for you.
About the author
Daan Rutten is an Independent Factoring Adviser at Nextfactor. Before that, he spent four years as a business consultant in credit management. He helped companies with credit reports, balance sheet analysis and sound credit control. Along the way, he dealt a lot with factoring, credit insurance and debt collection. Today, he helps SMEs find the factoring solution that fits.