Non recourse invoice factoring5/11/2023 ![]() As a result, companies undertaking some form of invoice finance, receivable finance or factoring tend to have the wrong expectation about this product, potentially incurring unnecessary costs and not truly understanding the credit-risk relationship.īefore we talk about non-recourse, let’s define recourse factoring. Unfortunately, non-recourse factoring is one of the most misunderstood subjects in commercial lending. When it comes to invoice finance, one marketing myth that has persisted is that non-recourse invoice finance shifts payment risk from seller to funder. This free resource includes every definition you’ll need to know when applying for invoice factoring and securing working capital.In life it is important to distinguish between marketing and reality. Learn much more about factoring terminology in the Ultimate Factoring Encyclopedia. This is another big advantage of working with a high-quality funding partner, and should be an important consideration when deciding where to look for working capital. Their experts are trained to spot businesses who are less likely to pay on time, and this can help you avoid non-payments and bad deals in the future. It’s also important to discuss the lending terms and ensure their team has expertise and a proven track record.įactoring companies with excellent back office teams will also be able to help you improve your customer collections. You want to collect more money when the invoice is paid (which are the “reserves”)įind out what type of lending option your funding partner has available, and ask if they offer recourse factoring.You’re okay sharing a little bit of risk.To a business in need of more working capital, this can be a severe disadvantage. In fact, you may receive less than 75% of the face value of the invoice - plus, you will not receive any reserves or holdback once the invoice is paid to the factoring partner. Typically in a recourse factoring arrangement, you can receive between 80 and 90% of the invoice upfront, minus the initial fee.Īnd once the factoring partner receives payment for the invoice from your end customer, you’ll also receive a reserve payment.Ĭonversely, in non-recourse factoring you won’t have to share the risk, but you’ll receive less working capital than with recourse factoring. This shared risk allows your lender to advance a larger upfront percentage of the invoice. There is a major advantage for you in recourse factoring. In this way, you share the risk of non-payment with the funding partner. In recourse factoring, a funding partner (aka your lender or the “factor”) buys invoices from you with the agreement that you will buy the invoice back if your customer is unwilling or unable to pay for the invoice when it becomes due. So what is recourse factoring, and why should a business understand how it works? How recourse factoring works There are a couple of different types of invoice factoring, and “recourse factoring” is the most common. Freeing up much of your time, you’ll be able to work on other parts of your business. But you can also benefit from outsourcing your back office support, letting your factoring partner handle collections on your accounts receivable. Instantly increasing your cash flow is, of course, the number one reason. Learn about the benefits of recourse invoice factoring and how it can offer you even more immediate working capital.įor small and medium-sized businesses, there are many benefits to factoring your invoices. Invoice Factoring Guide for Distribution and Wholesale Companies.Invoice Factoring Guide for Tech Companies.Invoice Factoring Guide for Manufacturing Companies.Invoice Factoring Guide for Trucking Companies.Invoice Factoring Guide for Oil and Gas Companies.Invoice Factoring Guide for Staffing Companies.The relationship economy and sales prospecting.
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