More flexibility in corporate financing
Factoring enables companies to secure valuable capital while at the same time protecting themselves against bad debt losses
Jan Schubert, Head of Factoring, Leasing & Working Capital Solutions
13. September 2024 | Reading time 5 minutes
A volatile market environment, supply chain bottlenecks and the effects of geopolitical tensions have recently posed major challenges for corporate treasurers. Solid professional working capital management is needed to deal with this. Companies rely on traditional trade finance solutions such as factoring.
Elementary component in the financing mix
Factoring is an elementary component of the financing mix in Germany and creates more flexibility in corporate financing. Medium-sized trading, production and service companies, for example, use factoring because their business activities involve receiving many invoices from Germany and abroad – often with longer payment terms. However, companies need sufficient liquidity to grow and further develop their business model. Especially for companies with a high level of receivables, it is a good idea to assign or sell trade receivables.
Optimized cash flow and flexible access to liquidity
The core idea of factoring is simple: by selling receivables from outstanding invoices, companies can generate liquidity immediately while minimizing the risk of bad debts. This means that companies remain liquid at all times and can use the proceeds to finance new business, pay running costs or invest in the resilience of their supply chains. In addition, they do not have to fear default risks, as the default risk is assumed. The financial situation can thus be strengthened overall. By receiving the proceeds from receivables earlier, companies protect their balance sheet and save themselves a number of bridging loans.
Receivables management through Smart Fact
With the “Smart Fact” product, Hamburg Commercial Bank has developed a special web-based offering. With Smart Fact, customers can conveniently use our digital platform to place either individual receivables or pools of receivables with a volume of 20 million euros or US dollars or more. The advantage of Smart Fact is the fast, secure and uncomplicated processing of the sale of receivables. Thanks to the efficient web-based solution, a large number of receivables can be converted into liquidity the very next day. The company has complete transparency of the current receivables portfolio and can adjust the sale of receivables on a daily to monthly basis to suit its liquidity requirements. As a result, the company can concentrate more on its core business. Hamburg Commercial Bank finances receivables in euros and foreign currencies in more than 50 countries. With our strong advisory skills in bilateral and syndicated lending for complex financing, we now have leading expertise in the areas of working capital and factoring. This is how we realize “clarity is capital” for our customers on a daily basis.
Factoring popular in Germany
Factoring is now one of the most popular forms of financing in Germany. According to the German Factoring Association, factoring turnover amounted to EUR 384.4 billion in 2023, an increase of 3.1% compared to the previous year. Around 106,000 customers used this method.
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