Optimize Cash Flow

What are the financing solutions to meet cash flow needs? Banks offer several types of arrangements:

1. Discounting

The bank sets a discount ceiling usually corresponding to one month of turnover. Within the limit of the capped amount, the company can use commercial papers (bills of exchange or promissory notes) accepted by the customer and with a maturity of more than ten days. These instruments are submitted to the bank and in exchange, the bank credits the company's bank account with the amount of the bill after deducting an interest, the discount. The amount of interest is determined by the maturity of the bill. The practice of discounting is widely used as a means of financing accounts receivable.

2. The "Dailly" Law

The bank provides the company with available funds as soon as the invoices are issued to customers. This process is less and less used as it is risky for banks. There have been frauds by some unscrupulous entrepreneurs who obtained credits from several banks based on the same invoices!

3. Factoring

In this case, the "factor" (a specialized company) provides the company with cash in exchange for its invoices, from their issuance. This expensive system should be considered after a detailed study of accounts receivable (number of clients, number of invoices, average invoice amount, client solvency assessment) and compared to other financing options.