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How is Recourse Factoring Different From Other Factoring Services?

August 23, 2022
Phil Cohen
what is recourse factoring
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What is Recourse Factoring?

Recourse factoring is a type of factoring where the client assumes all the risk of unpaid debt from their customer. In other words, if their customer does not pay the factoring company within that specific timeframe, the client will have to pay back the invoice amount.

While recourse factoring can be risky for businesses that work with unpredictable clients, it features rates that are significantly lower than those of non-recourse or spot factoring.

What are the Benefits of Recourse Factoring?

On top of having a lower rate than other methods of factoring, recourse offers lower fees. It also gives businesses the most money for their invoices, which allows more opportunities for growth.

Since the factoring company also checks the credit history of the business’ debtors before approving them for recourse factoring, bad debt is unlikely from clients who have a clean past. This mitigates the risk the company takes when they assume the responsibility for all invoices given to the factor. For good clients, lower factoring fees, higher advance rates and many other reasons, recourse factoring is a great option for companies wanting the most bang for their invoices’ proverbial buck.

How is Recourse Factoring Different From Other Factoring Services?

Recourse factoring is different from other factoring services in many ways. It offers lower fees and rates compared to other factoring services but requires the client to assume all risks of unpaid debt. Recourse factoring is the best form of factoring for businesses that work with reliable clients. This is because the clients are highly likely to pay their debt back on time.

In non-recourse factoring, the factor is responsible for the debtor’s unpaid invoices in the case of a client bankruptcy or insolvency. However, non-recourse does not cover situations in which the customer disputes the invoice. To offset the risk, factors normally charge higher factoring fees and advance rates for non-recourse factoring.

Spot factoring is an option that requires no long-term contract between the client and the factoring company, meaning factoring is done on a case-by-case basis. Non-recourse and recourse require all invoices to go to the factoring company. Spot factoring enables the company to pick and choose which invoices to factor and which to leave alone.

Why Should I Factor My Business’ Invoices?

Factoring business invoices can help many medium and small businesses fix or prevent cash flow problems. While long credit terms may be attractive to customers, sometimes waiting for cash from accounts receivable for upwards of 30 days is not doable. After all, you must pay expenses like payroll no matter what!

Many industries, such as staffing and construction, turn to accounts receivable factoring to improve their business cash flow. With accounts receivable factoring, a factoring company buys the unpaid invoices from the business and advances immediate cashless a small fee.

Factoring is:

How Do I Choose the Best Factoring Company for my Business?

You don’t have to choose the best factoring company for your business — that’s what we do! We work with a large network of factoring companies all over the U.S. Don’t waste your time calling multiple factoring companies to get their rates. Just call us and we’ll find you the company that can offer you the best deal.

All you have to do to get started is either give us a call or fill out a form. Tell us about your business and what your needs are. From there, we’ll match you with one of the factoring companies in our network that best fits your business’ situation.

It’s that simple!

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About the Author

Phil is the owner of PRN Funding and sister company Factor Finders. He has been an authority in the factoring industry for over 20 years, serving on the board of directors for several factoring associations.

Learn more about Phil Cohen