Factoring companies provide working capital to their clients. But of course they themselves require funding for their operations. What sources do they use?
- Parent banks: For bank owned providers the solution is usually to take funding from the parent directly, although this may sometimes be shared between participants in Joint Venture arrangements.
- Private Equity: The potentially high returns on capital and secure lending performance of factoring operations mean that they can be an attractive opportunity for private equity and venture capital to launch or upscale an operation.
- Back to back: an independent company may obtain funding from a bank owned factoring company by entering into a back to back arrangement where the liquidity for day to day operations is provided against the security of the borrower factor’s overall debtor portfolio
- Securitisation: a sufficiently credit strong company can consider the securitization of its debts, raising funds from third party funders based on providing them an income stream derived from future collections.
- Bonds: a sufficiently credit strong company may issue bonds to third party investors, effectively borrowing for fixed periods offering participants a fixed rate of return.
- Development banks: new start and growing operations in emerging markets may seek both debt and equity funding from regional development banks which specialise in infrastructure development projects.
- Funding: for example advances made by import factors, receivables exchanges and crowd funding.