Home|News|Factoring is often used by PE funds for portfolio companies
Factoring is often used by PE funds for portfolio companies
In an interview for Leaders League, Thibaut Robet and Gaëtan du Halgouët offer assistance in better understanding what is at stake with this private equity financing solution
Leaders League. Could you remind us of what factoring is?
Thibaut Robet. Factoring is a financing technique which allows a large portion of a company’s accounts receivables to be transformed into available cashflow. For BtoB companies that typically have 60-day payment terms on average with clients, this is the most significant short-term financing option possible.
Who is this financing solution best tailored toward?
Gaëtan du Halgouët. The leading users are growing companies. Those which require resources to speed up their growth. Factoring provides them with the cashflow buffer required to continue to supply and recruit. It is a low-cost and uncapped resource which is adjustable to the company’s development. These effective and profitable companies find factoring to be a reliable and sustainable solution. Finally, whilst factoring is often used as a booster for growth, it is also a tool particularly well-suited to crisis periods as factors are able to maintain their commitment, even when a company sees a drop in accounting performances.
Isn’t it often said that factoring is costly?
T. R. This stereotype is often brandished about. In reality, it is undeniably the short-term financing solution with the best ratio between the cost, the amount of the resource released, and the duration of the lender's commitment
If a company uses factoring, does it have to notify clients?
G. du H. In most European countries, just as in the majority of US States, there is no legal requirement to do so. However, some commercial agreements stipulate that suppliers seek the explicit consent of their client before transferring invoices to a third-party financing provider. Consequently, 95% of factoring agreements which our team has set up in the last 5 years are confidential.
Where can factoring be undertaken under the best financial conditions?
T. R. The financial conditions, and even eligibility for factoring, depend on the geographical location of the company issuing invoices. If I were to issue an invoice from Germany to a client located in Brazil, I would benefit from European financing conditions. However, if I were to issue and invoice to my Brazilian client from my Brazilian subsidiary, the Brazilian rates would be applied. We have been able to undertake factoring in 25 countries across Europe, North America and Australia.
Factoring is a bottom-line financing tool, how is it of interest to investment funds?
G. du H. Private equity firms (LBO) more often than not have confirmed credit lines (RCF: revolving credit facility) so as to meet any cashflow requirements. These lines are limited in their amount and are always combined with a clause (covenant) which requires early repayment in the event of any financial difficulties. Even in this instance, factoring is permanently operational. Moreover, when it is without recourse, it has no effect on debt ratios. It allows the company to sharply increase its cashflow level whilst improving its financial statements. An increasing number of Private Equity funds are favourable to their holdings using factoring solutions.
At what moment would Private Equity funds use factoring across their portfolio companies?
T. R. The issue of factoring is generally considered before takeover so as to be implemented in the months following closing. It has occurred that we have negotiated factoring just after signing for initial financing to be available on the closing date itself. Often, it is implemented to finance external growth operations, to participate in refinancing a company or to allow dividends to be distributed.
Can you enlighten us on any recent deals?
G. du H. Back in 2021, our team worked on implementation of around thirty new contracts, be it for international programmes without recourse or for French SMEs. In one of these cases, we provided support to a European group recording 2.3 billion euros in turnover to replace and expand its factoring programme. In the space of three months, we helped it to receive a confirmed credit line of 300 million euros over five years without any interruption to financing, and to roll this out to 23 entities across nine countries. We also provided support to a host of clients in expanding their programme to other entities within their group, which is a clear illustration for us of the real benefits of factoring for user entities.
Why has Chateaudun Credit changed its name to Fibus?
T. R. Over the last 5 years, some 50% of our assignments were achieved with international groups, despite our name… One of our partners recently asked us: “How does a company with such a non-international sounding name manages to develop so well on the international stage?”. We must, however, admit that our name – which is eponymous of the street where our first office was located – does not actually inform people about what we do. And so, we decided to bid adieu to Chateaudun Credit and become Fibus, still with the same mission of financing and securing your business!
Please remind us exactly what Fibus does?
T. R. Fibus provides assistance to French companies and international groups wishing to finance and secure their business. We respond to this need through three professional services: factoring, credit insurance and digital solutions. With regard to factoring, we manage our clients’ project from the stage of an early feasibility study right through to operational roll-out, including team training and tendering. With regard to credit insurance (client risk insurance), we assist our clients in choosing the very best level of cover possible and to best integrate this into their credit management processes. Finally, our digital solutions team both develop and integrate tools which streamline and automate some financing and client risk management tasks. Fibus is, therefore, made up of three strong divisions, the factoring brokering division led by Romain Chaufour and Maxime Bertin; the credit insurance brokering division led by Marc Chaqués; and finally, the digital division led by Frédéric Pouhet.
What’s new at Fibus in 2022?
G. du H. Early this year, we welcomed on board two new directors in: Frédéric Pouhet, who took on the responsibility of speeding up the digital transformation of Fibus Group, and Marc Chaqués, who is working on strengthening our credit insurance activities. We are planning the recruitment of six further people across all three professional divisions. We are also working on a new offer for our software solution with a host of new functions so as to further streamline operational oversight of factoring and credit insurance agreements.
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