Recourse Factoring And Non Recourse Factoring
So you are asking yourself, what exactly are recourse and non recourse factoring? Or wow does recourse financing differ from non recourse financing? There are, naturally, very big differences between the two. First though let's explain what factoring in general is.
Factoring is a financial transaction whereby a business sells its accounts receivables, also known as invoices, at a discount. Factoring companies hold the invoices, and the business gets the much needed cash. The debtor then pays the invoice directly to the factoring company, and the remaining balance is given to the business minus a fee for the factoring company. There are two main types of factoring coverage: recourse and non recourse.
Recourse factoring or financing translates to what the meaning of recourse actually is in and of itself. Recourse financing is the term of the cash advance on payable invoices. Should the debtor of that invoice not pay his or her invoice, the factoring company has "recourse," or the option, to get the money owed directly from the business receiving the cash advance. Recourse financing means the business is held liable for the future payment of the invoice.
Non recourse factoring or financing is similar but different. With non recourse factoring, should the debtor of the payable invoice not come through on the payment, the business is not responsible for the cash advance amount or fee. Instead, in non recourse financing, the financing company is held liable for receiving payment from the debtor. Both types of factoring are popular, but generally a financing company only does one. However, more and more financing companies are choosing to offer both services to their customers. Since recourse financing is less dangerous for the factoring company than the non recourse, factoring companies are choosing both as a viable business model. As may be obvious, non recourse financing has a higher liability than the recourse financing to the factoring company. This means it is easier to get recourse factoring than non recourse factoring. Nonetheless, getting a factoring loan will have a lot of different factors taken into consideration such as credit rating, cash amount of the invoices available, and how long the business has been in operation. There are a number of good companies in both the recourse and non recourse factoring business. You may have to contact several different companies to find one willing to take up your invoice or to get a quote that meets your monetary goals.
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