Henry Novelli

written by

Henry Novelli

Technology Blog - May 2, 2017

From Classical Factoring to the E-Wallet Platform

The advantages related to the E-Wallet platform are straight forward:

Unlock economic advantages in an increasingly digital world

Quickly schedule payments at your convenience

Seamlessly issue and settle invoices in real-time

Lower frictional costs fostered by blockchain

Streamline invoice process and proactively manage risk

Improve data management and transparency

Immutable recording of data without having a single point of failure

Real time view of cash flow and rapidly identify opportunities and / or risks

Let’s compare to the classical factoring

The factoring process could be extremely useful for fast moving companies which need to provide always fresh working capital to their core business. The more the liquidity involved in the game, the quicker the firm will be able to purchase goods at better conditions.

The factoring process is a form of financing in which a business sells its accounts receivable, mainly invoices, to a third party, at a discount. The third party is called factor. Once the fundamentals of the company we want to engage in the factoring process are checked, it is very important to protect ourselves (the factor), from default risk:

we must check the reliability of the entity that will be paying us the invoices once we will acquired them.

we must asses the origin of the third player involved to the extent that you would prefer your invoices to be paid surely from Amazon, which can be consider a triple A customer, rather than an unknown player, but this Amazon should also be coming from a reliable regions. We also need to set a limit amount on the invoices to be purchased.

Only now we can define fees and discount rates to be applied on invoices that will soon be purchased.

The process is now engaged; we will receive the amount of invoices to be purchased and we will wire to the interested party the specific amount less our factoring fees and deposit, if any, that was previously agreed.

After a certain period, (better if we define this at the beginning of the process), we will receive on our account the full amount of the invoice that was previously bought at a discount and the profit will be achieved.

In the example above we can clearly see how the process should work accordingly to the interest amount we want to accrue on the financing operation. In this case we choose to retaine a security deposit of 10% and to apply a factoring fee of 3% on the actual amount paid (100-10=90). This will lead to an effective rate of 2,7%. It will follow the purchase of the invoice for a total amount of 87,3%. It is worth to mentioned that the 2,7% return will be achieved only on the actual invested amount, and not on the full factoring limit granted if not fully used.

Theoretically, the return of 2,7% on the full amount granted, could only be achieved if precisely at T0 we were to invest the entire discounted amount and precisely at T31 receiving the face value amount of the invoice (less the deposit). In a real scenario it will be more likely that the factor will not reach its limit immediately and hence the return will be computed on the actual amount disbursed. Before choosing a factoring fee to be applied, the factor must check the margins of the company and try to agree on a rate that could be sustainable for the latter.

The risk arising from factoring investments could be handled if all the necessary precautions are taken, hence it would be necessary to establish a good relationship with your business partners together with a constant assessment of the company’s sales, margins, short term and long term strategies. 

We believe, the overall financing operation will be more likely to succeed and run smoothly if the entities involved get on well from the very beginning. The accounting and records of factoring operations can be tracked using excel tools or any other program with related features. 

As we can see from the chart below, the market for factoring has skyrocketed in the last years, bringing rumours of future expansion in applications management tools and related online platforms.

The E-Wallet

The E-Wallet is the customized factoring platform developed by Avoncourt. Following a deep understanding of the factoring market; and having in mind the SME sector’s needs.

One of its main features is the technology which lies behind: Blockchain, that enforce security, transparency and efficiency, giving the chance to potential investors to purchase the account receivables of the company they believe in the most.

Investors, after registration, can wire transfer the amount of money they want and convert the latter into tokens needed to participate in the platform.

Afterwards, an auction among the investor will take place. The best bid will be able to secure the firm’s receivables. After a certain amount of days the investor will receive 100% of the receivables he had previously purchased at a discount, hence making profit out of the investment.

The platform has to be thought as and adaptable instrument which will factorise not only the invoices derived from the core business of suppliers, but invoices in general.

We strongly believe in innovative financing solutions also giving the fact that we are living in a fast moving and accelerated society, fuelled from technological innovation.