To understand the differences between factoring and credit insurance, it is first necessary to recall the characteristics of each of these products.

Factoring is a solution that includes three services: the financing of invoices between 24 and 48h in exchange for the debts issued / the management of customer accounts by customer and by invoice, as well as the management of the collections and the recovery of debt / the guarantee against unpaid bills. While credit insurance only guarantees sales to customers and does not offer financing. This solution is based on several services: prevention and surveillance of all customers / Tracking bad debts / Recovery of debts / In case of unpaid payments of compensation. The next options for the factoring loans are right here.

What are the main differences between factoring and credit insurance?

Even though Factoring incorporates a credit insurance solution, it is primarily a tool for obtaining cash. The main objective is to finance the company while the credit insurance only guarantees the risk of unpaid. These two solutions are different but complementary. Factoring, in order to finance invoices, needs to secure receivables. The factoring agency can do this, either internally or externally, by signing a contract with a credit insurance company. For the company, credit insurance secures its customer position through the monitoring and assessment of delinquency risks, while factoring finances the need for cash.

The advantages and disadvantages of factoring

Factoring provides the company with an additional financial source to supply its treasury independently to its bank. It can then develop by releasing customer reminders and cash requirements. Another advantage of factoring is that invoices are 100% covered; while with credit insurance invoices are covered up to a maximum of 90% of the amount of the unpaid invoice.

However, it is a solution that remains unsuited to low volumes of accounts receivable, on the other hand, its price remains high especially if the company has many bills with a very small amount.

Moreover, factoring is not the best solution in the long term and does not meet the requirements of certain sectors of activity. Finally, factoring can disrupt business relationships because the customer is aware of the factoring.

The advantages and disadvantages of credit insurance Credit

Insurance offers a discreet solution for monitoring and selecting its customers, whereas with factoring, the customer is informed that his or her claim has been transferred. With credit insurance, it is possible to constantly monitor the financial health of its existing customers and to explore serenely. Among other things, it is possible to access attractive rates for the recovery of customers who are not insured, while maintaining control of the recovery of its customers. Finally, credit insurance tends to reassure bankers because the client is guaranteed.

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