If your company notices cash lags, you need to react quickly. Indeed, the lack of cash flow is often the first sign of a company in difficulty. If cash flow is insufficient, the company can no longer pay its suppliers or employees.
The professional cash loan (or cash credit) is a short-term financing that compensates for this lag, so that the company can continue to operate for the time it receives its payments. As such, your bank authorizes your bank account to be a debtor.
What are the different types of cash loans?
A loan for your company’s cash flow needs can take different forms depending on your needs, your activity:
- the cash facility:
- the bank overdraft;
- the campaign credit;
- the merchant cash advance loan.
Cash facility (or exceptional tolerance) represents a form of one-time cash credit, granted by your bank. This is an authorization to have a debit bank account. It can be obtained in the event of a very punctual cash lag. This will be the case, for example, if a customer is late in paying or if the company makes a substantial unforeseen expense. The cash facility is limited in time and must not be permanent, it is only granted for a few days a month.
The authorized overdraft makes it possible to meet a recurring cash requirement or a one-off requirement over a period exceeding a few days. The bank authorizes the debtor operation of the account up to a certain ceiling.
In practice: the cost of a cash loan in the form of a cash facility or authorized overdraft consists in particular of an interest rate and application fees.
The campaign credit is reserved for companies whose activity is seasonal (camping, ski resort, agriculture, etc.). It allows the company to pay its charges while waiting for the opening of the season and therefore the receipt of money. It is reimbursed with the receipts and the costs are only charged to the share of the credit actually consumed.
In addition to its cash credits per se, there are other solutions to finance cash needs that consist of collecting cash advances. These are:
Factoring is for BtoB companies. The factoring contract allows the company to transfer its invoices to a third party, the factor, in exchange for a commission. This solution can be expensive depending on the amount of commissions charged on each invoice, but it reduces payment times, and the risks due to recovery.
The discount as well as factoring is reserved for companies whose customers are professionals. It is possible when the bank has authorized the establishment of a discount ceiling. Then, the company can present drafts at the discount so that the amount of the invoices is paid into its account within a few days even though the initial payment period was longer. The bank therefore replaces the company’s customer for a short period of time. However, in the event of non-payment by the customer on the due date, the company remains responsible and the rules of exchange law are intended to apply.
Dailly financing (or Dailly assignment) consists of assigning the debt to a third party without the debtor’s authorization. However, it is recommended to notify the latter of the assignment of debts in order to avoid paying in the hands of his supplier who is no longer the holder of the assigned claim;
The MCNE works like the discount, but for companies whose customers are located abroad.
In addition, the cash loan for companies in difficulty can be difficult to obtain given the risk they represent. Before consulting the banking institution, it is therefore necessary to collect the company’s debts to reduce customer debts and to negotiate payment deadlines with suppliers. If the cash lag is too large and risks leading to the state of cessation of payments, it may be interesting to resort to an amicable procedure (ad hoc mandate or conciliation) or to request the opening of a judicial safeguard procedure.
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