Why factoring solves a real problem for Swiss SMEs
In Switzerland, many SMEs operate with extended payment terms — 30, 60, or even 90 days — while payroll costs, rent, and social security contributions (AHV/IV/EO, occupational pension) fall due every month. The result is a liquidity gap between the moment the company delivers the service and the moment it collects payment. Factoring addresses this problem differently from a bank loan: it monetises an existing receivable rather than taking on new financing — with effects on liabilities that depend on the model chosen (with or without recourse).
For entrepreneurs, self-employed professionals, and trust firms advising SMEs, factoring is a liquidity management lever to evaluate carefully. It does not replace a sound collections policy, but it can accelerate cash flow when revenue is solid yet customer payment terms are long. The choice between factoring with or without recourse, between notified or silent arrangements, and between full or partial advance affects costs, customer relationships, and accounting treatment.
This guide explains how factoring works in the Swiss context, with reference to the rules on assignment of receivables (Art. 164 et seq. CO, with written form under Art. 165 CO), accounting treatment under Swiss GAAP FER, and Accountex features for monitoring trade receivables and assessing the impact on liquidity.
What factoring means
Factoring is a financial transaction in which a company assigns its trade receivables — typically invoices issued to customers — to a factoring company (the factor). The factor advances the company part or all of the receivable amount, retaining a fee and interest for the advance period. The transaction is based on an assignment-of-receivables contract governed by Swiss contract law; unless otherwise agreed, the assignor does not guarantee the debtor's solvency (Art. 173 CO).
Assignment of the receivable
The company transfers to the factor the right to collect the invoice from the debtor customer. The assignment may be notified to the debtor (notified factoring) or kept confidential (silent factoring).
Liquidity advance
The factor pays the assigning company an advance — usually between 70% and 90% of the invoice value — within a few days of issuance, rather than waiting until the receivable falls due.
Collections management
The factor manages monitoring and collection of the receivable. When the customer pays, it remits to the company the difference between the amount collected and the advance already paid, net of fees.
Unlike traditional financing, with effective non-recourse factoring the company monetises an asset already on the balance sheet (the trade receivable) without increasing financial debt. With recourse, by contrast, the advance may be accounted for as a liability to the factor, while still being linked to the individual receivable assigned.
Types of factoring: choosing the right model
The Swiss factoring market offers several configurations. The choice affects who bears the customer's insolvency risk, how visible the transaction is to debtors, and the overall cost.
| Type | How it works | Insolvency risk | Indicative cost |
|---|---|---|---|
| Non-recourse factoring | The factor assumes the debtor's insolvency risk. The assigning company is not required to repay the advance if the customer fails to pay. | Assumed by the factor | Higher (greater fees and interest) |
| Recourse factoring | If the debtor fails to pay within the agreed period, the assigning company must repay the factor. The factor acts as financier of the advance. | Remains with the assigning company | Lower |
| Notified factoring | The debtor customer is informed of the assignment and pays the factor directly. Full transparency of the transaction. | Depends on the model (with/without recourse) | Market standard |
| Silent factoring | The customer is not informed: the company continues to manage the commercial relationship and collects on behalf of the factor. | Depends on the model (with/without recourse) | Generally more expensive |
For Swiss SMEs with solid customers and regular payments, recourse factoring offers an advance at lower cost. Non-recourse factoring is better suited when the customer portfolio is diversified but includes debtors with varying risk profiles, or when the company wants protection against a single significant default.
How the transaction works: from invoice to collection
The factoring process follows a clearly defined operational sequence. Understanding it helps integrate the transaction into day-to-day management workflows and accounting.
1. Factoring agreement
The company enters into a multi-year agreement with the factor, setting out the terms: advance percentage, fees, interest, type (with or without recourse), notification arrangements for debtors, and limits per individual customer or portfolio.
2. Invoice issuance and assignment
After issuing the invoice to the customer, the company submits it to the factor for assignment. The factor verifies the receivable — debtor solvency, absence of disputes — and approves the advance.
3. Advance to the account
The factor credits the advance (typically within 24–48 hours) to the company's account. The amount corresponds to the agreed percentage, under the contractual terms (sometimes net of retentions or fees).
4. Collection and final settlement
When the customer pays (on due date or early), the factor remits to the company the difference between the amount collected and the advance already paid, deducting interest accrued over the advance period. If the customer does not pay, the factor acts according to the contract terms (recourse or assumption of risk).
In Accountex, the accounts receivable cycle — from invoice creation to payment status monitoring — makes it easy to identify receivables suitable for assignment and to track factoring transactions already completed, avoiding double assignments or reconciliation errors.
Accounting treatment under Swiss GAAP FER
Factoring affects the balance sheet differently from a loan. Correct accounting entries are essential for faithful reporting and for dialogue with banks, auditors, and cantonal tax authorities.
| Transaction | Accounting entry | Balance sheet effect |
|---|---|---|
| Assignment of the receivable | Reduction of trade receivables if risk has been substantially transferred to the factor (non-recourse factoring). With recourse or repurchase clauses, receivables may remain on the balance sheet. | Decrease in current assets if the assignment is effective; otherwise unchanged |
| Receipt of the advance | Increase in liquidity (bank account). With recourse or disguised financing, corresponding recognition of a financial liability to the factor for the amount advanced. | Increase in liquidity; possible financial liability to the factor |
| Fees and interest | Recorded as financial expense or credit management cost, depending on the classification adopted in the income statement. Generally tax-deductible as operating expenses. | Reduction in operating profit |
| Non-recourse factoring | The receivable is definitively transferred if insolvency risk has passed to the factor. No residual liability to the factor for debtor insolvency. | Reduction in assets without increase in financial debt |
When the assignment involves a substantial transfer of risk (non-recourse factoring), the balance sheet is effectively "lightened": receivables decrease and liquidity increases without financial debt growing. With recourse, by contrast, the auditor and trust firm must verify that the advance is classified as financing rather than as a true-and-final assignment — a relevant point in reporting under Swiss GAAP FER (substance over form). For tax purposes: fees and interest are generally deductible for income tax and profit tax; the VAT classification of the factor's services should be checked in the contract, as with effective transfer of insolvency risk they often fall within services excluded from tax under Art. 21 VAT Act.
Factoring vs bank loan: operational differences
Many Swiss SMEs compare factoring with invoice discounting or a short-term loan. The differences are substantial and affect financial structure, costs, and operational flexibility.
Factoring
- Based on an existing receivable (issued invoice)
- With effective non-recourse factoring, financial debt typically does not increase
- Cost linked to each receivable assigned
- Fast availability (24–48 hours)
- Does not require additional collateral beyond the receivable
- Scales with revenue: the more you sell, the more receivables can be assigned
Bank loan
- Based on the company's creditworthiness
- Increases financial debt on the balance sheet
- Fixed or variable cost on the amount borrowed
- Longer approval process
- May require personal guarantees or mortgages
- Contractually fixed amount, independent of revenue
Factoring is particularly suited to growing SMEs with rising revenue but liquidity under pressure from long customer payment terms. A bank loan makes more sense when the company needs a fixed amount for an investment and has sufficient collateral and track record to obtain favourable terms.
Costs, risks, and evaluation criteria
Before activating a factoring contract, you need to quantify the effective cost and assess operational risks. Total cost is not always easy to compare directly with a bank interest rate.
| Cost component | Description | Order of magnitude |
|---|---|---|
| Management fee | Percentage of the assigned invoice value, for the advance and collections service | 0.3% – 1.5% of invoice value |
| Advance interest | Calculated on the days between advance and actual collection, on the amount advanced (often SARON + margin) | Approx. 2.5% – 6% per annum (variable) |
| Setup cost | Fixed fees for opening the contract and analysing the customer portfolio | CHF 500 to CHF 2,000 |
| Non-recourse cost | Additional premium for transferring insolvency risk to the factor | +0.3% – 1% vs recourse |
To calculate the effective annual cost (equivalent APR), consider a concrete example: a CHF 10,000 invoice due in 60 days, 85% advance, 1% fee, and 5% annual interest. The advance is CHF 8,500; the fee CHF 100; interest for 60 days approx. CHF 71. Total cost (CHF 171) on CHF 8,500 advanced for 60 days corresponds to an effective annual rate of approx. 12%. Compare this figure with available alternatives — loan, bank invoice discounting, extended supplier payment terms — before deciding.
The main risks include: dependence on the factor for operating liquidity, possible impact on customer relationships with notified factoring, and — with recourse factoring — the obligation to repay the factor if the debtor defaults. Monitoring receivables aging in Accountex helps identify whether the problem is structural (customers who always pay late) or episodic (a single customer in difficulty).
When factoring makes sense for a Swiss SME
Factoring is not the solution for every liquidity situation. Here are the business profiles in which the transaction delivers the greatest benefit.
Favourable profiles
- B2B SMEs with recurring revenue and solvent customers
- Growing companies with long payment terms (60–90 days)
- Businesses that want to avoid new financial debt
- Start-ups or scale-ups without sufficient collateral for a loan
- Marked seasonality with negative liquidity peaks
- Exporters with foreign customers and long collection periods
Unfavourable profiles
- SMEs with very thin margins (factoring cost erodes profit)
- Companies with insolvent customers or frequent disputes
- Businesses that need a fixed amount for investment
- Situations where customers pay regularly within 15–20 days
- SMEs with irregular revenue or concentrated on a few customers
Before activating factoring, analyse DSO (Days Sales Outstanding) — the average number of days between invoice issuance and collection — and compare it with the factor's costs. If DSO exceeds 45 days and operating margins are above 15%, factoring is generally sustainable. With margins below 10%, the cost of the transaction may undermine profitability.
Monitoring receivables and liquidity with Accountex
An informed factoring decision starts with reliable accounting data. Accountex lets you extract the information needed to assess whether and how much it makes sense to assign trade receivables.
Receivables aging: reporting on due, overdue, and open receivables helps identify customers with regular payments (suitable for non-recourse factoring) and those with recurring delays (better managed with recourse factoring or without assignment).
Projected cash flow: by comparing trade receivable due dates with supplier payables and fixed costs, you can estimate liquidity needs over the next 30, 60, and 90 days and calculate the optimal amount to assign to the factor.
Recording transactions: receivable assignments, advances received, and factor fees can be recorded using dedicated accounts, maintaining traceability between the original invoice, the factoring transaction, and final collection. This simplifies bank reconciliation and year-end closing preparation.
Periodic comparison: by monitoring DSO and the effective cost of factoring quarterly, you can assess whether to negotiate better terms with the factor, reduce dependence on the advance, or invest in a more effective collections policy to shorten payment times.