Before making any decisions, considering all the potential long and short-term impacts on your business is essential. It is important to survive in the market, grow, generate competition, and succeed. Whether your business is small or large, seeking funding solutions is important to smoothly run the operations, maintain cash flow, gain shares in the market, and fulfill orders. Many entrepreneurs use traditional funding solutions such as bank loans to get working capital for their businesses. However, not all companies are eligible for traditional bank loans, especially if they are startups or have not been in the business market for a long time. Thanks to some new and innovative funding alternatives that are not only less traditional but also quicker as compared to bank loans.
What is Recourse Factoring?
Recourse factoring is typically a formal agreement between a business and a factoring company. When businesses opt for recourse factoring, the factoring company takes the responsibility of recovering the invoices from costing your liable clients who do not pay.
Simply put, if a customer does not pay the cost of invoices within the deadline, the factoring company has a choice to charge unpaid invoices back to business owners. Businesses can replace unpaid invoices with other good invoices. In certain cases, the process is similar to taking a line of credits from any bank that offers a borrowing base as one of its loan requirements. If invoices remain unpaid for more than ninety days, the bank will not allow you to borrow money against them. Similarly, the factoring company asks you to replace it with unfunded invoices or advanced funds.
Recourse Factoring Benefits
Recourse factoring is not as risk-free as non-recourse factoring, but it is less costly. When clients have delinquent invoices for more than two months, the business has to repurchase the invoices from the facto to recover the cost. Precisely, recourse factoring offers the following benefits:
- Fast working capital for business needs
- No loans or debts on your balance sheet
- Steady cash flow for the business
- No stress of handling invoice collection
What is Non-Recourse Factoring?
Unlike Recourse factoring in non-recourse factoring, the factoring company accepts all the non-payment credit risks of the customers. This option is suitable for businesses that do not meet the criteria of recourse factoring. However, in this option, businesses get a credit guarantee from the factoring company for collecting their invoices. The credit guarantee can be for all invoices or certain clients only.
Typically, this credit guarantee is valid for the clients charged for bankruptcy. Understanding this point is critically important, as this does not guarantee that your business has coverage for the services and goods your clients dispute for not fulfilling the specifications. However, it works like an “insurance policy” that protects you from bankruptcy to help your business survive in the market. If you do not consider the client’s reliability, you may face problems if he/she fails to pay for any reason.
Benefits of Non-Recourse Factoring
Non-recourse factoring is relatively less risky as it enables a factoring company to take full responsibility for unpaid invoices or bankrupt clients. Factors take action against the clients who default or do not pay at specific times. The option is beneficial if a business lacks money, resources, and money when it is about taking responsibility for invoice collection. The benefits offered by non-recourse factoring include:
- Same-day cash funding
- No risk of credit
- No additional debts
- Immediate working capital
Choosing between Recourse and Non-Recourse Factoring
When it comes to comparing the factoring types, it is vital to identify the party which is at greater risk for debts. Once you figure out this difference, making the right choice becomes easy.
These alternative solutions help startups and businesses get additional working capital and stabilize cash flow. Invoice factoring, in this regard, is one of the common and easy funding solutions for businesses that cannot qualify for a bank loan and seek immediate funds. The option is, without a doubt, easy-to-qualify for immediate financial needs. Reliable factoring companies like Porter Capital have made getting additional working capital extremely easy for the companies. With its flexible funding solutions, it can help you maintain your cash flow and working operations by providing instant funding to fulfill business needs. From providing custom loan solutions to inventory borrowing, Porter Capital helps businesses prevent seasonal fluctuations in their business.
Porter Capital is Your Go to Invoice Factoring Company
Overall, invoice factoring is a great funding alternative for businesses to prevent unstable cash flow. However, to reap the benefits of factoring, you need to know the differences between recourse and non-recourse factoring, which can help businesses make informed decisions when choosing a factoring company. If your business needs either recourse or non-recourse factoring, apply using our online form, and one of our representatives will be in touch as soon as possible call us at 1-800-737-7344.