Purchase Order Financing: possible until June 30, 2021!

Factoring allows a company to submit its receivables to a specialized company, usually a financial institution (called a factor), which will collect the invoice payments from the company’s customer. The factor can even, according to what is stipulated in the factoring agreement, guarantee the payment of the invoices submitted to it or, better, make an advance payment.

To support the cash flow of companies during this time of health and economic crisis, the government has put in place an accelerated factoring system. In France, factoring is normally allowed on invoices issued once the work is completed, i.e., goods were delivered, or the service was rendered. With the introduction of the new system, companies do not need to wait for the delivery of goods/services and the issuance of the corresponding invoice. They may, on an exceptional basis, apply for financing from the factoring company as soon as an order is confirmed by a customer. In practical terms, it is sufficient to send to the factoring company the accepted quotation or to justify an awarded contract.

This early financing is possible thanks to the guarantee that the State provides to the operation. It must be noted that the State covers up to 90% (80% or 70%, depending on the case, for large companies) of this financing.

Important: This scheme, which used to apply only to purchase order financing agreements concluded between August 1st and December 31, 2020, has been extended by 6 months and may therefore apply to purchase order financing agreements that may be signed until June 30, 2021.

A standard agreement

In practice, to benefit from the accelerated factoring system, the company must sign a standard agreement with the factoring company under which, among other things, it guarantees that the order submitted to the factoring company for financing is firm and final, and that an invoice will be issued within 6 months after the date of the signing of the order. In addition, the agreement must set a ceiling for the financing of the order. The funds made available to the company cannot exceed this ceiling.

The factoring company must, if it wants to benefit from the State guarantee, respect the specification defined by public authorities.