Liquidity Management - Maintain your company's liquidity

The sale of receivables is also known as factoring. Here, a company sells its receivables directly after drafting the invoices in exchange for immediate payment of the outstanding amount. The receivable is transferred to a new creditor – based on a corresponding purchase contract. The sale of receivables is completed when ownership of the respective receivables has been transferred. The seller of the receivable is then liable for the validity of the receivable, not for its collectability. The default risk is therefore generally also transferred to the new creditor with the sale.

Receivables are often sold as so-called non-performing loan (NPL) packages. These are unsecured receivables, which are sometimes also referred to as "defaulting receivables". Receivables with long payment periods are also classed as non-performing loans. When sold, the total value of the receivable minus a deduction is assigned to the new creditor. This increases the liquidity of the former creditor. It also improves their balance sheet, as they then no longer have to wait for the debtor to pay the outstanding balance in future. This purchase of receivables is primarily performed by collection agencies.

With factoring, a company sells its receivables to a factoring company immediately after drawing up the invoice(s). This allows the selling company to avoid the risk of a payment default and also dispense with the process for monitoring outstanding receivables. In addition, factoring gives the company immediate liquidity. This can then be used for any number of things, such as making the most of supplier discounts or performing investments of its own.