How to deal with financial problems in the trade industry? Learn about factoring

Coronavirus, has caused almost every segment of the economy to suffer significant losses. Of course, one industry is doing better and another worse, but few will say that they have not felt the pandemic passing through our country. Particularly disadvantaged certainly is the trade industry, which has had to contend with lockdowns and operates under constant stress from new restrictions. In this text we will tell you a little more about factoring, a way to cope with financial problems.

Liquidity, liquidity and more liquidity

Liquidity is crucial in any industry, but in the broader retail or wholesale trade it is of special importance. This is because liquidity helps to ensure competitiveness in the market and is an engine for business development. For any trader, of course, the best solution is to invoice his contractors with immediate payment, but surely you know that this is not so easy. This is because companies have, as it were, learned to buy with the help of trade credit. This is a practice that involves issuing sales invoices with deferred payment. In this situation, the party issuing the document is forced to wait for payment.

Time is money

A long wait for money can not only stagnate your business in terms of day-to-day operations, but also cause the growth of the company to be blocked. You also can’t help but think of the potential problems associated with paying your own dues. After all, you have to pay:

• employee salaries,
• SOCIAL SECURITY,
• taxes,
• current bills,
• the cost of renting production machinery,
• car leasing.

Why is access to cash important?

In many cases, company purchases with cash are much more profitable than those made with trade credit. Wholesalers often reward their customers who pay immediately by giving them interesting discounts. It follows that access to cash in the context of a company in the trade sector is very important. So you can’t afford to wait for weeks for your money, because your company will suffer.

What to do when customer payments are extended to 30, 60 or 90 days?

The best solution in such a situation is to use a factoring service. Invoice financing involves the sale of receivables. In a nutshell, the idea is that if you have an invoice with an extended due date, you can give it to a factoring company or other financial institution, which will pay you an advance and make sure that the receivable comes back to you.

How does micro factoring work?

A huge advantage of the factoring service is its simplicity. For the most part, the whole process is easy and transparent without any unnecessary legal cusses. Below we have described how factoring works step by step.

1. Issue an invoice

After selling goods or services, you must issue an invoice to your customer with an extended payment term. This is very important, because without this type of document, the factoring company will have no basis to begin its work.

• You send it to the factoring company

The document that goes to the invoice financing company is analyzed and checked from a legal and financial point of view. If everything is in order the invoice begins to be processed.

• You book the advance

The factor transfers money to your account, which is an advance of the amount entered on the invoice. The amount of the advance depends on the agreement between you and the factor. That’s why you should read the detailed terms and conditions of the service before signing the contract.

• The factor keeps an eye on the repayment of receivables

The factoring company is in charge of enforcing repayment from your creditor. You, on the other hand, can continue your day-to-day operations and focus on business development.

Who can count on invoice financing?

Recently, the rules related to the availability of factoring have liberalized significantly. To take advantage of invoice financing you must meet the following conditions:

• the business should have at least 12 months of seniority (JDG, SMEs, Limited Liability Companies, joint stock companies),
• invoices issued to customers must assume a deferred payment period,
• the contractor and the entrepreneur must not be entered in debtor registers (BIG, KRD, etc.),
• the gross amount on the invoice should be higher than PLN 250 gross.

As you can see, micro-invoicing is a simple and accessible service, which significantly increases its popularity. In hard times, solutions that make life easier for entrepreneurs and allow them to grow are especially needed. After all, the loss of liquidity has already laid many a company that did not know about the possibilities of defending itself against deferred payments and dishonest contractors. So, if you’re looking for steady growth and trouble-free operations, factoring is something that will work for your business.