Private equity funds are increasingly interested in factoring for their current or future investments. Building a factoring programme for an international group owned by a private equity fund is precisely one of Chateaudun Crédit's areas of expertise. Thibaut Robet and Gaëtan du Halgouët, the partners of Chateaudun Crédit, answer our questions.
Introduce us to Chateaudun Credit.
Created in 2005, Chateaudun-Crédit is the leading consulting company in France and Europe specialising in factoring and its derivatives. Its job is to help the company, whatever its size or geographical location, to set up the best possible financing solution. We advise our clients on all aspects of their factoring project: financing evaluation, choice of bank, negotiation, internal organization, IT, accounting and legal.
What is factoring?
Factoring is a financing technique that allows a company to transform its trade receivables into cash. The company transfers its invoices to a financial institution that pays them immediately and then the financial institution is in turn paid by the company's customers.
Let's take a numerical example: a company with an annual turnover of €100 million, which is paid within 60 days by its customers, will be able to generate between €12 million and €15 million in cash thanks to factoring.
Can factoring be done in any country?
Factoring is possible in all OECD countries but not only. It is the techniques, financing conditions and legal environment that vary from one country to another.
To date, Chateaudun Credit has had the opportunity to negotiate factoring contracts in 23 countries.
And how much does it cost?
Factoring is like a revolving credit line but with fewer constraints and at a (much) lower cost. Less restrictive because it is not very dependent on the company's financial results. Cheaper: the all-in spread of a factoring contract is between 1 and 2%!
We understand the importance of factoring for the company. Why is factoring of interest to the shareholder?
The interest is indirect. Thanks to factoring, the shareholder ensures that the company has a secure and stable working capital financing, which enables it to control its equity contribution. Traditional bank financing lines often have strict limits and financial covenants. Factoring makes a solid financial contribution to the company's development, which is very reassuring for the shareholder.
What are the issues and challenges of an international factoring program?
The first challenge is to determine the scope: choose the countries and subsidiaries that will contribute their receivables to the Group's factoring program. This choice is made according to the size, activity and legal environment of the subsidiary; the relationship between the complexity of the project and the contribution to the financing.
The second issue is the amount of the credit agreement and therefore the choice and number of financial institutions to be involved in the project.
The main challenge is to bring 3, 5 or even 20 companies from the same group together in a time-limited project. This is the expertise of Chateaudun Credit's international team.
When do you think the shareholder should consider the question of factoring?
As soon as possible: ideally before you even acquire the company. The shareholder must know very early on whether the company is eligible for factoring and if so, under what conditions.
Knowing the "factorability" of the company is decisive in the acquisition financing choices. In addition, the acquisition debt agreement provides for a factoring "basket" with or without recourse that must be assessed.
Chateaudun Credit supports Private Equity funds on this subject as well.