Glossary
What do the technical terms mean
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Payment does not have to be complicated. However, there are technical terms that are often not common.
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Factoring
With factoring, small or ailing companies remain liquid in the long term. The idea behind it is that an external company (the factor) buys a receivable from its customer (the company in question). This means that a company that offers goods or services receives a corresponding amount from the factor as soon as the invoice is issued and does not have to wait for the buyer of the goods or the recipient of the services to settle the invoice. The factoring of credit card receivables is not permitted.
Processing
As the advance payment is usually 80 to 90 percent of the amount of the receivable, a margin is charged for reasons of the non-recourse sale of receivables and the risk of default. In addition, there are security retentions to cover discounts on receivables. These are usually between 10% and 20% of the receivables portfolio. The advantage for the seller of the receivables is that he is 100% protected against bad debt losses.
Reverse-Factoring
In contrast to classic factoring, the reverse factoring procedure is aimed at the buyer, who in this way obtains longer payment terms. In this case, the customer concludes a framework agreement with the factoring company to pre-finance the supplier's receivables. The factoring company pays the corresponding amount to the supplier.