Recourse And Non-Recourse Factoring

When you make use of an invoice factoring company it is very important to be aware of who is responsible for debts which occur when customers fail to pay. If you have a recourse factoring agreement then the factor will not take on the risk of the debt, they will just collect the money from you if an invoice goes unpaid.

Recourse Factoring Explained

This is a lower cost form of factoring because you continue to take the risk of bad debt rather than passing the burden on to the factoring company. This type of factoring is also easier to attain, the invoice factoring company will tend to have less stringent rules about your business systems and the payment history of your customers. If you have unreliable customers this could result in you having to pay back the factor the amount they advanced you, as well as the normal fees and interest, before you receive payment from your customer.

Non-Recourse Factoring Explained

In non-recourse factoring the factor assumes responsibility for all bad debts. This means that if a customer does not pay an invoice you do not have to pay back the amount advanced to you by the factoring company. The factor legally takes ownership of the debt. As you may expect, non-recourse factoring attracts higher fees than recourse factoring as the factor is incurring a level of risk. Also it may be harder for your business to obtain non-recourse factoring services if you have weak financial systems or numerous customers with bad payment histories.

It is important to choose the correct type of factoring for the current state of your business, but equally important is choosing the right invoice factoring company to deal with. There are some factors in the market who offer lower levels of customer service, even if they charge low fees this lack of service could end up costing you more in the long run.

We have built up a network of invoice factoring companies in the UK which we trust, they will deliver on their promises. Why not get in touch with us today on 0845 838 0936 or drop us an email and let us introduce you to the most appropriate factor for your business needs. Our brokering service is FREE of charge so you have nothing to lose and you could make a real difference to your firm's bottom line.