Guide: Selling invoices - for businesses

Factoring and selling your invoices

Factoring means that you can borrow money against the security you have in your customer invoices. Invoice factoring is a good way to get cash, for example when you can't get a loan from the bank or when you are expanding and need to temporarily boost liquidity.

How much does it cost to sell your invoices?

Typically, invoice discounting allows you to borrow between 70-80% of the invoice amount while invoice purchase offers you 100% of the invoice amount minus the fee. The fee is often between 1.5 - 3% of the invoice amount. The interest rate is based on the loan-to-value ratio and invoice risk.

Things that negatively affect interest rates are

• If your company has payment remarks
• If your company has made a loss
• If your company has changed representatives in recent years

Things that have a positive impact on interest rates are

• Higher monthly volume
• Creditworthy beneficiaries
• Solid history

Alternatives to selling your invoices

Alternatives to selling your bills can be business loans for larger investments line of credit for cash flow or a business card for the more everyday expenses.

Reverse factoring

Like regular factoring but in reverse?

Normally, a company can sell its invoices to a finance company that pays the money directly. In reverse factoring, supplier financing or reverse factoring, the debtor is the initiator - not the supplier (the one selling the invoice).

Why do you want reverse factoring?

In most cases, the debtor wants longer payment terms.

How reverse charge services work

It starts with the debtor contacting the factoring company or finance company to see if they can get the invoice debts to their suppliers financed. The factoring company then makes a credit assessment of the debtor. An approval for reverse factoring, supplier financing or reverse factoring is only given if the debtor has a very good payment capacity and creditworthiness. This is because most factoring companies and finance companies, but also banks, guarantee non-recourse factoring for all invoices they purchase.

If an agreement is reached, the company receives a credit up to a certain amount. The agreement must be signed between the company receiving the credit, the supplier and the factoring company.

As a company, you get a kind of revolving credit similar to an overdraft facility. This is usually a cheaper financing solution, but it is relatively difficult and unusual to resolve. The positive aspect of reverse factoring is that the supplier will always be paid by the factoring company and this therefore reduces the risk of the arrangement.

Challenges and laws

There are often problems, especially in the construction industry, around payment times. Many large companies have long payment terms that put smaller subcontractors at a disadvantage as they have to spend a lot of money on staff, materials, vehicles, machinery, etc.

As of March 1, 2022, companies with more than 249 employees will be required to report their payment terms to their subcontractors.

Companies are obliged to provide this information:

• The average contractual payment period
• The average actual payment period
• The proportion of invoices paid after the end of the agreed payment period

Payment times must be reported separately for subcontractors as well:

• 0-9 employees
• 10-49 employees
• 50-249 employees

If your company uses reverse factoring, you have to report these data separately. This means that you have to report nine additional data if you use reverse factoring for all three size categories of companies.

Questions and answers on selling invoices

1. How is confidential information and data protection handled in the process of invoice purchase and invoice service?
   
   When it comes to handling confidential information and data protection in the process of invoice purchase and invoice service, it is standard practice for all financial companies and banks, including Qred, to follow strict rules and regulations for data protection and privacy. These rules are designed to protect both the company's and its customers' information. These measures include encryption of digital information, secure login, and access controls to ensure that only authorized personnel have access to sensitive information.
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2. Are there any long-term consequences or disadvantages for a company's creditworthiness when using invoice factoring or invoice discounting?
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   Regarding the long-term consequences or disadvantages for a company's creditworthiness when using invoice factoring or invoice discounting, it is usually the case that the use of these services does not directly affect a company's creditworthiness negatively. Instead, they can help companies to improve their liquidity and thus potentially strengthen their financial position. However, it is important for companies to manage their financial commitments wisely to avoid overborrowing.
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3. What criteria does Qred use to assess a company's creditworthiness?
   
   The criteria Qred uses to assess a company's creditworthiness can include analyzing the company's financial history, payment history, loss history, and any changes in management.
   
   
4. How does the use of reverse factoring affect the relationship between the company, its suppliers and the factoring company?
   
   The use of reverse factoring can affect the relationship between the company, its suppliers and the factoring company by creating a more stable financial environment for the suppliers, who are guaranteed payment for their invoices. This can lead to stronger and more trusting business relationships. However, it is important that all parties are clear about the terms to avoid misunderstandings.
   
5. Does Qred Bank offer factoring?
   
   No, not at the moment. However, we do offer other services such as corporate loans, corporate cards and personal savings accounts.