Factoring is selling accounts receivable at a discount to a third party, the factoring company. They take on the risk on your behalf and become responsible for collecting the bill.
What you gain via factoring
With the certainty of payment, albeit a reduced amount, companies can plan with greater confidence.
What you lose when compared with credit insurance
The first thing you lose is a portion of the amount payable—the discount at which you sold the debt. But you also miss out on all the additional services Coface can provide that factoring companies don’t:
- Indemnified debt collection service
- Up-to-date financial information on 80 million companies worldwide
- Credit opinions on your current and prospective customers
- Political risk assessments
- Exclusive data on economic and business trends
Another consideration is that the factoring company is very likely to outsource the debt collection and the risk of non-payment to a credit insurance company, so you will still have credit insurance in a sense, but second-hand and without the control you would have over your own policy with Coface.
