Most companies depend on fast access to bank credit to ensure a smooth workflow for their operations. Money needs to be readily available as firms invest a substantial amount of resources in:
Inventories
Client receivables
Maintenance
Equipment and machinery
Whether due to business model, operational conditions or even customer needs, companies often face a discrepancy between when they receive payments from their customers and when they pay their suppliers, tax authorities and staff. To compensate for this discrepancy, companies can turn to their shareholders to provide more capital to cover these financial needs, or resort to bank loans.
However, landlords are not always willing to increase their investment, and banks may set strict credit limits or impose extremely high costs for short-term loans.
An alternative for optimising cash flow management
As an alternative to more traditional financing, companies can resort to other solutions, including the advance payment of customer credits and invoices.
Advance payment of invoices
The advance payment of invoices (or invoice discounting) is commonly referred to as factoring. Technically, the operation consists of assigning short-term commercial credits relating to sales and goods or services provided to your customers to a third party called a Factor. These operations are carried out in exchange for a payment corresponding to a discount on the invoice amount or the equivalent of an interest rate for the period that is advanced.
Advantages of early invoice payment
Although companies do not want to see their operating margins reduced, choosing to pay invoices early, even at a discount, can be a very rational and cost-effective option compared to obtaining external funds.
This solution can be:
More accessible
Faster
Less expensive than a traditional loan
1. More accessible financing
Since the payment risk is related to their customers' credit rating and not that of the invoice issuing firm, often the implicit financing costs when accepting prompt payment discounts are much lower than the usual short-term borrowing costs. Even in situations where the client company's risk is high, there are options for mutualising credit, such as adopting a recourse regime, which significantly lowers the risk of the transaction and, therefore, its cost.
2. Improvement in financial ratios
Choosing to sell invoices allows you to free up immediate liquidity and helps reduce your debt ratio (measured in ratios such as Debt/Assets, Debt/EBITDA or EBITDA/Interest Expense). This option helps reduce liabilities and lowers the perception of financial risk by banks, credit rating agencies or other debt holders.
3. Less concern about collections
Advance payment of invoices allows companies to stop worrying about collecting accounts receivable. In practice, factoring can act as a mechanism for reducing the risk of non-payment by your customers. In addition, companies that advance invoice payments do not need to have part of their organisational structure focused on collecting invoices or even debts. This allows them to focus all their efforts on what their business is really about: producing, selling and delivering the best products and services in the most efficient way.
Factoring at Daskapital
Daskapital offers your company a collaborative financing platform that will allow you to advance payment of your invoices from clients quickly, securely, and with controlled costs.
Learn more about Daskapital's crowdfactoring solutions here.
Frequently Asked Questions
Invoice Advance is a crowdfactoring solution for short-term financing that allows companies to anticipate the payment of invoices receivable, obtaining immediate liquidity. Invoice Advance is managed by Daskapital España S.L., a subsidiary of Das Kapital Lda.
In the Invoice Advance collaborative financing model, companies publish the credits they hold on their customers on the Daskapital platform, and investors compete with each other to purchase, at a discount, part or all of the invoice. Through an auction process, they define the amount they wish to invest and the minimum return they require, and companies will be financed by the group of investors demanding the lowest interest rate.
On the invoice due date, the debtors (the company's customers) pay the credit, returning the capital invested to the investors. The profit comes from the difference between the amount invested in the invoice seller and the amount received from the invoice payer, which corresponds to the discount.
Crowdfactoring is a form of collaborative financing in which companies can receive advance payment for receivables owed by their customers through online platforms such as Daskapital.
In this model, investors purchase invoices (partially or in full) at a discount (which translates into a rate of return), advancing their value to companies. This allows companies to quickly obtain the financing they need, while investors earn a financial return by acquiring the right to receive payment of the invoice amount (partial or full) on the due date.
Invoice Advance offers advantages for both investors and companies.
For investors, it allows them to diversify their portfolio with short-term investments and above-average returns, choosing the invoices in which to invest (and the consequent level of risk and maturity) and the minimum rate of return they require, with security and transparency guaranteed by Daskapital, which analyses and verifies the solvency of the payers of the invoices provided by the assignors.
For companies, it guarantees immediate liquidity without resorting to banks, allowing them to finance themselves at even lower interest rates if they are assigning credits on companies with lower risk than themselves, as the associated risk, as perceived by the investor, is that of the invoice debtor.
It can be used by companies as a way to balance the risk level and maturities of their accounts receivable.
Each financing request or investment opportunity is subject to a rigorous risk analysis by Daskapital before being made available on the platform, based on:
- Accounting, financial and commercial data provided by the promoters of the companies;
- Credit information from Iberinform (Atradius Credit and Surety), such as ratios, information on incidents, legal proceedings and other independent data;
- Analytical and statistical models (credit score and limit);
- Document verification and, in some cases, verification of the accuracy of the information provided, among other procedures.
Daskapital requires real and personal guarantees and only publishes projects that meet the minimum criteria for risk and fair profitability. All this information is disclosed and made available in each financing request or investment opportunity.
If you need further clarification, don't hesitate to get in touch with us at support@daskapital.eu.
