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

Welcome to 1st Trust Factoring, an invoice factoring company specializing in servicing the healthcare community! For those of you not familiar with factoring, it is simply selling a company’s receivables to raise cash. Accounts receivable factoring has several benefits, including getting cash quickly, using the credit of your company’s customers, and using off balance sheet financing that shows as cash, not debt, on your own business’s balance sheet.

The intent of this blog is to help inform the community which I am serving as to why factoring is such a good thing for your business, whether your business is in desperate need of cash or not. In general, factoring can improve the profit picture on your balance sheet, which most companies do not realize. And, of course, factoring is key for a company that is growing, enabling cash to finance added staff and resources without conventional loans.

Let me introduce myself – I am Nancy Anderson, a cash flow consultant. I hold an MBA, as well as training and experience in factoring. I look forward to getting to know you and establishing this factoring community!

Visit us at http://www.1sttrustfactoring.com.

Regards,

Nancy Anderson

Tweet This Post