Call us today at 800-897-1339 Start your factoring account now at Preliminary Factoring Application

• Recently Written

  • Recourse vs. Non-Recourse Factoring
  • Introducing 1st Trust Factoring!
   

• Categories

  • No categories
   

• Archives

  • December 2007
  • September 2007
   

• RSS Subscriptions

  Podcasts Feed
  Comments RSS RSS
  
  
  
  
  
  
  
  
  
  
  
  
  
  
   
  

  Tag Cloud

  
  
   

If you are considering factoring for your business, there are a number of things you should know, including what the difference is between recourse and non-recourse factoring. Factors (companies who buy your receivables) usually do recourse OR non-recourse factoring, and a few offer both. In simple terms, with non-recourse factoring, your company will have credit protection from the factor. With recourse factoring, your company does not enjoy the same credit protection, and your company takes the risk for customer non-payment of invoices.

Translated, this means that when the factor reviews and approves his client for non-recourse factoring, he is reviewing and approving the creditworthiness of the customers of the client under the invoices, with the idea of taking on the risk of all the invoices being paid or not, without holding back any monies to his client. The client receives a cushion from the risk of a customer not paying and will experience fewer cash flow problems and improve his financial stability. Often, non-recourse factoring is more expensive, simply because of the added risk for the factor. In addition, there is usually an application fee.

In recourse factoring, the credit risk remains with your company. If a customer doesn’t pay an invoice within a certain period of time – no matter what the reason – the factor has the right to go back to its client for payment. Generally, recourse factors hold a portion of the funding in escrow, usually around 20%, for the cases where a customer does not pay an invoice in a specified time. However, when invoices are paid on time, then the escrow monies are returned to your company. This is often a less expensive way to obtain factoring and does not include an application fee.

If your company is only interested in increasing the amount of your cash flow/working capital and you have financially stable customers, then recourse factoring is usually your best option. However, if your company requires insurance against bad debts, then non-recourse factoring should be considered.

Tweet This Post

Be kind to yourself and fair to others -

Nancy Anderson
800-897-1339
www.1sttrustfactoring.com

Comments

• Blogroll

  • Medical Factoring Services - Information on Medical Factoring Services from 1st Trust Factoring.
  
  Nancy Anderson
  Cash Flow Consultant

• Admin

  • Log in
   

  Search