Invoice factoring is one of the best ways of quickly acquiring cash for any small business willing to sell its invoices to a factoring company. In literally a few days, it will be possible to receive an amount of money equivalent to something like 80% of the total invoice amounts. You don’t even need to have especially good credit to be approved, since any factoring company will be more interested in the payment habits of your customers rather than your own credit history. Here’s how non-recourse invoice factoring works.
Non-recourse invoice factoring
Invoice factoring is of two varieties, those being factoring with recourse and factoring without recourse. The vast majority of alternative lenders will prefer to deal with factoring with recourse, because it protects them against financial loss if your customers are unable to pay their invoices for some reason. In that case, the factor would return the invoice to you and expect you to pay the invoice amount.
In non-recourse factoring, this would not be allowed. If a customer refuses to pay an invoice amount, or is financially unable to do so, the factoring company would simply have to absorb the loss. It would not have recourse to present that invoice to the selling company and expect payment for it. If you can arrange for non-recourse invoice factoring, it will be much better for your company, although the factoring company might be reluctant to agree to that.
Why a factor might agree to non-recourse factoring
Although it doesn’t sound like any factor would ever agree to non-recourse factoring, this isn’t quite the case. When a factoring company has a number of clients such as yourself, it can spread the risk over all those clients to minimize any financial exposure. The factoring company will also have evaluated your customers beforehand, and if it has been determined that those customers generally pay their invoices promptly, there’s much less risk involved to the factor. In some cases, a factoring company will also offer a credit protection program, which will tend to offset those situations where customers are for some reason unable to pay their invoices.
Is your company a goof fit for invoice factoring?
If you’ve been thinking about invoice factoring, we’d like to hear from you. Contact us at Eagle Bend Capital Financing, so we can consider together some options you may have for becoming involved with factoring.