What is factoring and how it can help your SME

What is factoring?

Factoring is a financial operation in which your company sells its term invoices to a financial institution (the "factor") and receives the amount in advance — typically between 70% and 90% of the invoice value. When your customer pays the invoice at maturity, the factor keeps its fee and returns the remainder.

How does factoring work in Portugal?

1. The SME issues invoices to its customers with payment terms (30-120 days)
2. It submits the invoices to the bank or factoring platform
3. The bank assesses the risk — quality of the debtor, payment history, financial health of the SME
4. It receives the advance (typically 80-90% of the value) within 24-48 hours
5. The customer pays at maturity and the bank is paid directly
6. The bank releases the remainder less the agreed fee

Types of factoring

Recourse factoring

If the debtor does not pay, responsibility reverts to the SME. It is the most common type in Portugal and carries lower rates because the bank takes on less risk.

Non-recourse factoring

The bank assumes the risk of the debtor defaulting. Higher rates, but the SME fully transfers the collection risk.

Confidential factoring

The debtor is not aware that the invoice has been assigned. The SME continues to manage the collection directly.

How much does factoring cost?

Costs vary according to the risk, the term, and the amount. In Portugal, typical rates are:

• Service fee: 0.5% to 2% of the invoice value
• Financing rate: 2% to 6% annualised (depends on the term)
• No fixed monthly costs on most digital platforms

For a €10,000 invoice at 60 days with a rate of 3.5%, the cost would be approximately €57. Compare it with the cost of an overdraft in our calculator.

Who can use factoring?

Any Portuguese company that issues term invoices to other companies (B2B). The typical requirements are:

• A company with an active tax number and regular commercial activity
• Invoices issued to business customers (not private individuals)
• Payment terms between 30 and 120 days
• No history of serious default

Factoring vs. other forms of financing

Factoring is not a loan. It does not create debt on the company's balance sheet, does not require personal guarantees (in most cases), and does not affect credit capacity. It is simply the advancing of money that is already owed to you.

Compared with:

• Bank overdraft: more expensive, requires guarantees, limits credit capacity. See detailed comparison →
• Bills discounting: heavy bureaucracy, requires sureties, slow process
• Bank loan: creates debt, requires a business plan, takes weeks

How Advanta simplifies factoring

Advanta is a digital platform that connects your SME to partner banks for factoring operations. The process is simple:

1. Connect your ERP (TOConline, Primavera, PHC GO, or 8 others)
2. Invoices are imported automatically
3. Our AI analyses the risk and presents the estimated rate
4. Submit the invoices you want to advance
5. The bank approves and you get paid in 24-48 hours

No paperwork, no meetings, no personal guarantees.