Factoring in Switzerland: Costs and Risks | Magic Heidi

With factoring, you transfer receivables to a factor. Depending on the contract, you receive an advance, receivables-management services and limited protection against customer default. Whether it makes sense depends on the actual offer, not a blanket judgment about sole proprietorships.

Important: A payment reminder does not finance an invoice in advance. It can improve a process, but replaces neither factoring liquidity nor agreed default cover.

Recourse and non-recourse factoring

With non-recourse factoring, the factor assumes the default risk defined in the contract. Check credit limits, exclusions, disputes and recourse where the receivable does not exist or performance is defective. Non-recourse does not mean every invoice is insured without exception.

With recourse factoring, you generally retain the economic default risk. The factor can require repayment under the agreed conditions. Plan for that possible cash outflow.

Open or silent factoring concerns customer notification and payment routing, not automatically the scope of risk cover. Obtain a written explanation of who must pay whom, when, and what happens to payments sent to the wrong recipient.

Check the contract before assigning receivables

Under Article 164 CO, a receivable can generally be assigned without the debtor's consent unless prohibited by law, agreement or the nature of the legal relationship. Article 165 requires written form for the assignment. Check assignment prohibitions in your customer contracts too.

Before signing, establish:

• Which invoices the factor may or must accept.
• What proportion is paid out, when, and what remains as a reserve.
• Which records and customer acceptances are required.
• Who handles customer questions and complaints.
• What happens on late payment, termination and chargebacks.

Submitting an invoice guarantees neither acceptance nor payout within 24 hours. Obtain binding conditions rather than applying general advertising times to your receivables.

Compare fees, interest and minimum charges

Compare several written offers for the same invoice portfolio. This guide does not establish a universal Swiss price of 1–3%. Minimum turnover, advance percentages and terms depend on the provider and contract.

Entirely fictional calculation, not a provider quote

An invoice totals CHF 10,000.00. Assume a 90% advance, a 1.2% fee on the invoice amount and 6% annual interest on the advance for 45 days using a 365-day year. The example excludes other charges and any VAT on services.

• Advance: CHF 9,000.00.
• Fee: CHF 10,000.00 × 1.2% = CHF 120.00.
• Interest: CHF 9,000.00 × 6% × 45 / 365 = CHF 66.58.
• Total costs: CHF 186.58.
• Final payment after full customer payment, with all example costs deducted from the reserve: CHF 1,000.00 − CHF 186.58 = CHF 813.42.
• Total received: CHF 9,813.42.

Check cash available at each stage, not just the annual price. If fees are deducted immediately, the first payout is lower. If the customer pays late, the interest period and recourse position may change.

When can factoring make sense?

Consider it particularly where you must finance wages or materials before customers pay and customers require long payment terms. Compare the cost with an available credit line, your own cash reserves and the return on the engagements being financed.

Where customers pay quickly, the financing period may be short. On thin margins, a turnover-based fee can consume a large share of profit. Calculation only: with CHF 100,000.00 turnover and CHF 5,000.00 profit, an additional CHF 2,000.00 cost equals 40% of that profit. This is not a market price or a complete assessment.

Consider dependence on the factor too. What happens if it stops accepting a major customer or the contract ends? An alternative funding plan belongs in the decision.

VAT and bookkeeping are not determined by the payout account

Receiving money from the factor does not create revenue from your original service a second time. Assess the original supply's VAT treatment separately. Whether and when tax arises depends partly on the VAT accounting basis and the specific receivables transaction; do not simply apply the normal customer-payment date to the factor's payout.

VAT on factoring costs is not “always 8.1%” either. Financing and transfer services can be treated differently from separate collection or administration services. Article 21 paragraph 2 item 19 of the VAT Act excludes certain financial transactions from VAT, but does not exempt every service a factor provides. Input tax deduction has its own requirements; a business expense and deductible input tax are not the same thing.

Have the contract assessed to determine whether the receivable should be derecognised or economically remains with you. Reconcile advances, reserves, fees, interest, customer receivables and chargebacks. Require understandable statements from the factor and give them to your fiduciary adviser.

Alternatives: compare their actual effects

• Advances or milestones: Agree them before contracting to reduce work financed in advance.
• Shorter payment terms: Agree them with customers; do not change an existing contract unilaterally through an invoice. See payment terms.
• Early-payment discounts: Pay for earlier payment through a price reduction. Compare that cost with financing; see discount calculations.
• Clear invoices and reminders: Use the right recipients, clear descriptions and documented follow-up. See payment reminders.
• A credit line: Compare actual availability, collateral, interest and fees.

None guarantees the same liquidity or default protection as a particular factoring contract. Decide according to the cause of the gap: advance funding needs, poor processes or actual default risk.

Frequently asked questions

Does a sole proprietorship need factoring?

Not automatically. Advance work, payment delays, margins, costs and available alternatives matter more than legal form alone.

Does the factor cover every default?

No. Even non-recourse factoring has contractual limits. Read the limits and recourse provisions for disputed receivables in particular.

Which providers are cheapest?

That cannot be answered responsibly without comparable current offers. This guide deliberately avoids unverified provider prices or minimum volumes.

Sources

• Articles 164–165 CO on Fedlex: assignability and form.
• VAT Act on Fedlex: particularly Articles 21, 28 and 39–40; assess accounting basis and service components separately.
• VAT for freelancers: Swiss VAT accounting basics.

General information. Have financing, accounting and VAT assessed professionally against your contract.