Introduction

Which programme types are a good fit for your business? This blog works through three questions to help determine which programme - factoring, securitisation, or both - may be a good fit for your receivables and worth evaluating further.

1. Existing Debt

^‍How will new funding interact with your existing debt? 

1.1 Covenant Alignment

Existing debt covenants may restrict the types of additional financing your business can take on. 

Two common restrictions are:

• Negative pledge clauses, prohibiting the transfer or encumbrance of assets to a third party;
• Additional indebtedness restrictions, limiting the volume or type of new financing a business can take on without lender consent.

Go/No-Go signal: Hard restrictions may rule out both programmes. However, some restrictions can be addressed through specific structuring choices: for example, both factoring and securitisation programmes can sit alongside negative pledge clauses when structured as true-sale transactions.

1.2 Balance Sheet Presentation

Achieving off-balance sheet treatment may be a key objective if headroom is constrained or in preparation for a capital markets process.

Receivables Financing can raise new funding without adding additional debt to the balance sheet. The key is securing a true-sale, non-recourse structure, to support derecognition under IFRS 9 and IFRS 10.

Go/No-Go signal: If off-balance sheet treatment is a priority, both factoring and securitisations can be structured to support this.

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2. Your Receivables Pool

What is the makeup of your receivables pool?

2.1 Size and Diversity

The size and diversity of your receivables pool determines which programmes you can access, how they will be priced, and how efficiently they will operate over the term. 

Factoring’s cost structure typically performs best across small, concentrated receivables pools. This is driven by two features

• Invoice-Level Seller Interest: Each invoice is assessed individually against the general performance of the receivables book at large, and then the seller interest is established. This leads to uncertainty on what effective discount will be applied to the invoice.
• Bilateral Structure: Factoring is set up as a direct engagement between seller and funder. Its simple structure is fast and low-cost to stand up, making set up costs proportionate for a smaller programme.

Securitisation performs best across a large, diversified receivables pool, with a cost-structure driven by:

• Programme-Level Pricing: Pricing is set at programme-level, against the risk of the pool as a whole. The larger and more diversified the pool, the stronger the case for competitive terms.
• Complex Structure: Securitisation’s structure is more complex to stand up. It carries higher fixed costs that need to be spread across the funded base. The structure’s fixed costs fall as volume increases, making the economics attractive at scale.

Go/No-Go signal: A small or concentrated receivables pool points toward factoring. A large, diversified pool points toward securitisation. If your receivables base sits in between, both may be worth evaluating. Our blog, 7 Mechanics That Determine The True Cost of Receivables Finance, can help you evaluate the terms of the two competing programmes in detail.

2.2 Seasonality and Variability

Assessing the seasonality and variability of your receivables pool over time is also key to determining which programme is a good fit.

Securitisation performs best on a relatively stable pool of receivables. Due to the long term nature of the commitment from the funders, the programme should be consistently utilised to ensure the programme meets the agreed costs. If the facility is not carefully sized, a seasonal or variable pool disrupts this: in quieter periods, fixed costs concentrate on less funding, pushing the effective cost per unit higher.

Factoring’s cost structure does not rely on steady line utilisation. Fees are charged per invoice, meaning that they scale proportionally with volume. If invoice flow drops, so does the cost of the programme.

Go/No-Go signal: If your invoice volumes are highly seasonal or variable, factoring is likely the better fit. If volumes are steady and high-frequency, securitisation is the better fit.

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3. Funding Commitment

Does your team need short-term or medium-long term funding? The two programmes differ in the durability and certainty of the funding they provide. 

Factoring facilities can be run over several years, but they are fundamentally discretionary, short-term structures. Funders can terminate a factoring facility on short notice (usually 30-90 days) as well as reduce funding at any point during the programme.

Securitisations are structured as committed, multi-year facilities. Funders cannot withdraw funding during the agreed term, except in the event of a predefined breach. This provides durable, predictable funding to support medium-long term investments.

Go/No-Go signal: If you need short-term or stop-gap funding, a factoring programme is likely the best fit. It is lower cost, faster to arrange, and easier to exit. Securitisation is likely the stronger choice if you need predictable, committed funding over a multi- year term. Businesses that begin with factoring often migrate to securitisation as their receivables base grows, and the case for committed, lower-cost funding strengthens.

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Takeaway

This blog worked through three themes that can help you assess which receivables financing structures are a good fit for your business in principle. 

In short, Factoring is typically best suited for businesses with smaller, seasonal receivables needing flexible, short-term funding, while securitisation is best suited for large, stable pools requiring committed, multi-year financing. Both options can be structured to accommodate existing debt covenants and achieve off-balance sheet treatment.

If you’re looking to compare specific programmes on the table in more detail, read our latest Whitepaper: A guide to comparing the mechanics and all in-cost of receivables factoring and receivables securitisation programmes.

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The right programme starts with the right conversation.

Talk to the Gardenia team about what a receivables finance programme could look like for your business. 

gardeniatech.com/book-a-demo

contact@gardeniatech.com

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