Non recourse Factoring with off balance sheet effect

For years, Factoring was mainly focused on short-term financing of SMEs. Henceforth, factoring is destined for all types of companies and offers innovative structured receivables finance solutions such as Off Balance Sheet Financing. Our specialist Eric Le Vavasseur explains us this solution.

Origination & Structuring Manager at Societe Generale Factoring’s Corporate department, Eric le Vavasseur works on sale and structuring of Receivables Finance programs. Off Balance Sheet Financing is one of the solutions structured by Societe Generale Factoring, Eric Le Vavasseur shares here the main principles.

Off Balance Sheet Financing

A standard receivables finance program aims to improve the working capital and the treasury of the client. Off Balance Sheet Financing offers more possibilities. In fact, such financing responds to a need to lighten the balance sheet and improve debt ratios (leverage and financial autonomy).

In an Off Balance Sheet Financing, the client transfers to the bank almost all risks and advantages associated to the receivable. This transfer without recourse allows the client, subject to internal audit approval, to remove these trade receivables from his balance sheet. Thus, such Off Balance Sheet Financing enables the client to improve his balance sheet ratios.

“An Off Balance Sheet Financing enables enhancement of balance sheet, decreasing net financial debt and improving leverage and financial autonomy ratios.”

Structuring an Off Balance Sheet Financing

The setup of an Off Balance Sheet Financing differs from the setup of receivables finance with recourse, as the program is tailor made and adapted to the specific needs of the client. Societe Generale Factoring brings its expertise along with a documented agreement, ensuring compliance with accounting guidelines, which permits to derecognize the receivables. Point to keep in mind is that, only the clients’ auditor is entitled to approve the off balance sheet effect provided by the receivables finance program.

“we study the needs of each customer to build tailor made programs which perfectly meet the specificities of their industry and respect evolving legal and accounting guidelines.”

Step-by-step break up of the structuring of an Off Balance Sheet Financing program

• The first step consists of studying the client’s needs and understand specificities of his activity: desired program settings may be discussed (rhythm of assignments, amount of facility, assignment mechanism to consider…), as well as underlying risks.
• As a next step, a tailor-made structure is proposed to the client based on the exchange of information during the first stage.
• When the proposal is accepted by the client, required operational IT adaptations, are launched. Finally, legal documentation is adjusted to client’s context and negotiated accordingly in view for audit presentation for validation of the off balance sheet treatment.

Engage in ESG* through an Off Balance Sheet Financing

Corporate companies are increasingly attentive to Social and Environmental subjects. For several years, the banking sector has offered ESG solutions, but in receivables finance, the concept is still particularly new. Societe Generale Factoring has built its own solutions in 2022, making it the first French factoring company to offer such solutions. This ESG Solution allows the client to achieve a bonus in case ESG commitments are achieved.

“In 2022, we have implemented our first factoring program with ESG commitments, this is a major, fast growing objective of our clients”

Conclusion

Off Balance Sheet Financing aims to meet the needs of Corporates and medium-sized companies which, beyond cash requirements, are seeking to improve their balance sheet presentation. This solution makes it possible and enables improvement of certain financial indicators.

“We are attentive to the needs of our customers. The expertise of our teams makes it possible to structure tailor-made programs adapted to your expectations.??

Find this article, our explanatory infographic as well as the contacts of our specialists and experts on this page: Societe Generale Factoring website