Valencia Plaza has published an article by José Roca Barrachina, Managing Partner of Kaizen Consulting Vlc, titled «How to Finance Sales to Public Entities through Non-Recourse Factoring.» You can read this opinion piece on Valencia Plaza via this link. Below is the full article:
A significant portion of our business sector operates with public entities. Companies invoiced €60 billion through FACe: the General Entry Point for Invoices of the State Administration. This figure highlights the importance of this sector of our economy and also explains the need for public sector suppliers to finance sales that are not immediately collected.
What is the best way for a company to finance these delayed sales? Among the various methods to finance working capital, the most appropriate one would be the most efficient in terms of financing cost, service recurrence, certainty in terms, and impact on the balance sheet. In other words, the method that leverages the asset generated from the sale itself: trade receivables. And this is undoubtedly non-recourse factoring, which relies on the transfer of these assets, these trade receivables, and effectively addresses the working capital financing needs of public sector suppliers. However, not all financial providers offer this product under the same characteristics and conditions.
For instance, financial institutions find it challenging to provide this service because they must report this risk to CIRBE (Central Risk Information System). Additionally, the relevant administration must classify it as financial rather than commercial debt, as the new creditor is the bank, which counts towards its maximum leverage. From our perspective, it should be classified as commercial credit. Here, alternative finance banks have an advantage as the risk is outside CIRBE, and consequently, the public company does not need to reclassify its commercial debt as financial debt.
The most attractive offers in this field are non-recourse public factoring. We are not talking about complex operations only available to large companies with high sales volumes. There are straightforward offers to purchase trade receivables from public debtors, with comprehensive services that are unbeatable in terms of value addition and extremely competitive prices.
“Invoice and assign the credit,” is all that is required from the company. In return, it receives a commitment to obtain all the credit needed for its public sales, with a model that guarantees terms and avoids uncertainty in payment dates, fixes the cost of payment deferral, and allows this liquidity injection not to be counted as debt. What more could one ask from a factoring financing structure?
This is not science fiction; these solutions are available in our market and accessible, with proper management and communication, to most public sector suppliers.
We encourage companies to embrace these new financing tools, with the proper advisory we offer, to find the most efficient way to finance their sales to public administrations.
For any inquiries about factoring and financing needs, consult with us, and we will seek a tailored solution to meet your needs.
