Factoring: is invoice factoring a solution for your cash flow?

Your order book is full, your invoices go out on time, but your bank account remains desperately empty. You're waiting for your customers to pay at 30, 60 or 90 days, whilst you need to pay your suppliers and salaries now. This is the paradox of many Swiss SMEs: being profitable on paper but lacking liquidity day-to-day.

Factoring offers a direct solution to this problem: assign your invoices to a specialised company that immediately pays you 80 to 90% of their amount. No need to wait for customer payments to cover your expenses. But this invoice advance comes at a price, and the receivables assignment mechanism involves important nuances.

In this guide, we break down how SME factoring works: exact mechanism, types of contracts, real cost calculations with Swiss practical cases, and above all, when this solution is relevant versus other options such as customer deposits or optimising your invoicing. No miracle promises, just the figures and facts to make an informed decision.

What is factoring?

Factoring is a financing solution that allows a company to assign its customer invoices to a specialised third party: the factor (factoring company). In exchange, the factor immediately pays 80 to 90% of the invoice amount, without waiting for the payment term.

Concretely, you sell your customer receivables to obtain instant liquidity. The factor then handles collection from your customers.

Unlike a traditional bank loan, factoring is not a debt: you simply monetise your invoices in advance. No personal guarantee or debt on the balance sheet.

How does factoring work in practice?

The SME factoring process follows five simple steps:

Invoice issuance: You create and send your customer invoice as usual
Receivables assignment: You transmit the invoice to the factor who purchases it
Immediate advance: The factor pays you 80 to 90% of the amount within 24 to 48 hours
Collection: The factor handles collecting payment from your customer
Final balance: Once the customer has paid, you receive the remaining balance, minus commissions

Obtaining funds generally takes 1 to 2 working days after file validation.

The three types of factoring

The Swiss market offers three factoring formulas, each with its specificities in terms of risk, cost and confidentiality. The choice depends on your financial situation, the quality of your customer portfolio and your commercial priorities.

Here are the three main options available for Swiss businesses.

Standard factoring (with recourse)

In this formula, you remain liable in case of payment default. If your customer doesn't pay, the factor can ask you to reimburse the advance paid.

This is the least expensive solution because the factor transfers the non-payment risk to your company. Commissions are generally 0.5 to 1% lower compared to non-recourse factoring.

This option suits businesses with a reliable customer portfolio and good knowledge of their solvency.

Non-recourse factoring

Here, the factor assumes the entire non-payment risk. If your customer doesn't pay, you keep the advance received without any reimbursement obligation.

This complete protection against payment defaults comes at a price: commissions are higher, generally 1 to 2% additional. The factor rigorously analyses each customer before accepting the receivables assignment.

Ideal solution to secure your cash flow against new or risky customers, without compromising your growth.

Confidential factoring

Your customers don't know that you've assigned their invoices. You maintain the commercial relationship and manage reminders and collection yourself.

The factor remains behind the scenes and intervenes only for financing. You receive payments from your customers then transfer them to the factor according to an agreed schedule.

This discretion preserves your professional image, but involves more administrative work on your part. Fees are often slightly higher than other formulas.

How much does factoring really cost?

Factoring combines three types of fees:

Financing commission: Interest rate on the advance, generally 0.5 to 2% per month (6 to 24% annually)
Management commission: 1 to 3% of the total amount of assigned invoices
Additional fees: File fees, account opening, customer credit analysis

Concrete example: For a 10,000 CHF invoice with 60-day payment, 85% advance = 8,500 CHF. Financing commission 1.5% × 2 months = 255 CHF + management commission 2% = 200 CHF = total cost 455 CHF (4.55% of the amount).

Practical case: cost calculation for a Swiss SME

Situation: SME with 50,000 CHF monthly invoices and average payment term of 45 days.

Detailed calculation:

85% advance = 42,500 CHF available immediately
Financing commission 1.5% over 1.5 months = 956 CHF
Management commission 2% = 1,000 CHF
Total monthly cost: 1,956 CHF

That's 3.9% of turnover for immediate liquidity of 42,500 CHF. In comparison, a bank overdraft generally costs 8 to 12% annually, but with personal guarantees and a limited ceiling.

When is factoring relevant?

Invoice advance via factoring becomes an interesting solution in several situations:

Rapid growth: Need for immediate cash to finance new orders or hire staff
Long payment terms: Customers who pay at 60, 90 days or more
Strong seasonality: Need to finance stock or production during high season
Bank refusal: Difficulty obtaining traditional credit

To optimise your cash flow upstream, consult our guide on SME cash flow management.

The limitations and disadvantages of factoring

Let's be transparent about the negative aspects:

High cost: 3 to 5% of turnover, much more than a traditional bank loan
Long commitment: Contracts often for 12 to 24 months minimum with exit penalties
Minimum volume: Most factors require 100,000 to 200,000 CHF annual turnover
Customer selection: The factor may refuse certain invoices deemed too risky
Relationship impact: In non-confidential factoring, your customers know that a third party manages collection

This solution is generally not suitable for freelancers or very small structures.

Factoring vs other cash flow solutions

Factoring is just one option among several to improve your cash flow. Before committing, compare it to the alternatives available in Switzerland.

Each solution has its advantages and disadvantages depending on your situation, your sector of activity and your financing needs. Here are the main alternatives to consider.

Factoring vs bank loan

Factoring: Quick access (48h), no personal guarantee, but high cost (3-5% of turnover). Suitable for urgent situations and businesses without solid banking history.

Bank loan: Less expensive (2-6% annually), but lengthy procedure (several weeks), guarantees required (mortgage, personal surety), and thorough financial analysis.

Favour bank loans for structural medium-term needs, factoring for occasional immediate liquidity needs.

Factoring vs customer deposits

Requesting deposits remains the cheapest and simplest solution to secure your cash flow. No intermediary, no fees, just commercial negotiation.

Discover how to invoice deposits effectively to protect your cash flow from the start of the project.

Factoring comes in when deposits aren't enough or are refused by your customers, particularly in public markets or with large companies.

Factoring vs collection optimisation

Improving your invoicing and reminder processes can reduce your payment terms by 15 to 30 days without external cost. Automatic reminders, clear payment terms, and rigorous monitoring often make the difference.

Consult our guides on improving cash flow through invoicing and recovering unpaid invoices.

Factoring becomes a complementary solution, not a replacement for good internal management.

How to choose a factoring company in Switzerland?

Before signing, evaluate several essential criteria:

Minimum volume: Check that your turnover meets the requirements
Sector of activity: Some factors specialise in specific areas (construction, services, industry)
Pricing transparency: Demand a detailed breakdown of all fees
Commitment duration: Favour flexible contracts with possible exit
Customer service: Test responsiveness before committing
Reputation: Consult reviews from other SMEs

Compare at least three offers and carefully read the general conditions, particularly termination clauses.

Is factoring right for you?

Ask yourself these questions to evaluate the relevance of SME factoring:

Do you have reliable professional customers (not private individuals)?
Does your invoicing volume exceed 100,000 CHF per year?
Do your payment terms regularly exceed 45 days?
Do you need immediate cash to finance your growth?
Can you bear a cost of 2 to 4% on your turnover?

Factoring can be an occasional tool to get through a stage or a structural solution depending on your activity. Upstream, BePaid helps you optimise your invoicing and payment monitoring, potentially reducing the need for factoring.

Factoring represents an effective cash flow solution for Swiss SMEs facing long payment terms. By assigning your receivables to a factoring company, you immediately obtain 80 to 90% of your invoice amounts, which improves your liquidity without bank debt.

However, this solution has a cost: between 1% and 4% of assigned turnover, to which management fees are added. It mainly suits rapidly growing businesses or those facing customers with extended payment terms. For many SMEs, other alternatives such as requesting deposits or optimising collection may prove more profitable.

Before committing, compare real costs and evaluate your cash flow needs. To improve your payment management without factoring fees, discover our 7 invoicing strategies or test BePaid for free to automate your reminders and accelerate your collections.

Factoring: is invoice factoring a solution for your cash flow?

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