There are several different variations of invoice factoring which you might want to take advantage of, and there are some subtle differences between these types of arrangements which you should know about. Non-recourse invoice factoring consists of an agreement made between an alternative lender and a company where the company is not obliged to pay back the alternative lender in the event that one or more customers don’t pay their invoices.
The reason a customer would not pay their invoices is generally restricted to going bankrupt, as opposed to a simple avoidance of making the payment. This is in direct contrast to invoice factoring with recourse, wherein the amounts not paid to the alternative lender by customers must then be made up by the company which invoiced the customer.
Recourse vs. Non-Recourse
The question of whether you arrange for invoice factoring with recourse or with non-recourse, will depend on several factors. First of all, the credit-worthiness of your customers will be considered by an alternative lender before deciding on which type of factoring to allow. Some alternative lenders are so well-established, that they can spread the risk among many of their clients, so they will always allow non-recourse factoring. In some cases, the factoring company will offer a credit protection program which helps protect them against the possibility of customers being unable to pay their invoices.
Features of a Non-Recourse Factoring Agreement
As in a normal factoring agreement, the factoring company would pay your company an amount equal to between 80% and 90% of the face value of your invoices. When customers pay their invoices, the factoring company would then remit the remainder of that amount to your company, after having subtracted out their factoring fees. If some customers are unable to pay their invoices due to bankruptcy or other extreme circumstances, you would not be held liable for those amounts.
Would Invoice Factoring Help Your Small Business?
If you are interested in trying invoice factoring as a means of getting quick funding and maintaining cash flow, we might be able to assist you. Contact us at Prosper Lending Firm to discuss getting set up for invoice factoring.