Guide: Sell invoices - for business

Factoring and selling their invoices

Factoring means you can borrow money against the collateral you have in your customer invoices. Invoice purchases are a good way to free up cash, for example when you do not receive a loan from the bank or when you are expanding and need to temporarily strengthen liquidity.

How much does it cost to sell your invoices?

Most often, you get to borrow between 70-80% of the invoice amount when borrowing an invoice, while invoice purchases offer you 100% of the invoice amount minus the fee. The fee is often between 1.5 — 3% on the invoice amount. The interest rate is based on the loan ratio and invoice risk.

Things that negatively affect the interest rate are

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

Things that positively affect the interest rate are

• Higher monthly volume
• Creditworthy recipients
• Solid history

Alternatives to selling your invoices

Alternatives to selling their invoice can be business loans for larger investments, check credit for cash flow or a company card for the more mundane expenses.

Reverse Factoring

As usual factoring fixed the other way around?

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

Why do you want reverse factoring?

Most often, this is a case of the debtor wanting longer payment terms.

How reverse invoicing services work

It starts with the debtor contacting the factoring company or finance company to see if they can get the invoice debts financed against their suppliers. The factoring company then makes a credit assessment of the debtor. An approval for reverse factoring, supplier financing or reverse factoring only takes place if the debtor has very good solvency and creditworthiness. That's because most factoring companies and finance companies, but also banks, guarantee factoring without recourse for all invoices that they purchase.

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

As a company, you then get a kind of current credit that can be likened to a check credit. Most often, this is a cheaper financing solution, but it is relatively difficult and unusual to solve. The positive thing about reverse factoring is that the supplier will always be paid by the factoring company and this therefore lowers the risks associated with the setup.

Challenges and Laws

There are often issues, particularly in the construction industry, around payment times. Many large companies have long payment terms that put the smaller subcontractors in a pinch as they have to spend a lot of money for personnel, materials, vehicles, machinery, etc.

As of March 1, 2022, it is legal for companies with more than 249 employees to report their payment times to their subcontractors.

Companies are obliged to provide this information:

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

Payment times must be reported separately for subcontractors with:

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

If you as a company use reverse factoring, you should report this information separately. This means that you should report nine more data if you use reverse factoring for all three size categories at companies.

Questions and answers about selling invoices

1. How are 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 invoice purchase and invoice service process, it is standard for all financial companies and banks, including Qred, to comply with strict data protection and privacy rules and regulations. These rules are designed to protect the information of both the company and its customers. 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 drawbacks to the company's creditworthiness when using invoice purchase or invoice service?
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   Regarding the long-term consequences or disadvantages to the creditworthiness of the company when using invoice purchase or invoice service, it is usually the case that the use of these services does not directly adversely affect the creditworthiness of a company. Instead, they can help companies 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 may include analysis of the company's financial history, payment notes, loss history, and any changes in corporate management.
   
   
4. How does the use of reverse factoring affect the relationship between the company, its suppliers and the factoring company?
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   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 and conditions to avoid misunderstandings.
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5. Does Qred Bank offer factoring?
   
   No, not right now. However, we have other services such as business loans, corporate cards and savings account for private individuals.