In today’s post, we review the most common types of receivables factoring to help you decide which one is the best fit for you and your business. Keep reading to learn more.
Types of Factoring
No matter what type of factoring you choose, the basics remain the same.
Factoring your receivables means selling them to a factoring company (commonly known as “factor”). The factor pays you immediately, saving you the trouble of having to wait 30 to 90 days for your client to pay you, and then proceeds to collect the payment from your client in exchange for a small fee.
This arrangement is always the same in all types of factoring. The difference is what happens after the factor buys your receivables.
When it comes to factoring of accounts receivable there are two basic options: recourse factoring and non-recourse factoring. Let’s take a closer look at the pros and cons of each.
Recourse Factoring
Simply put, the “recourse” part of recourse factoring means that if you factor your invoices but your client is unable to pay the factor, then the factor has the right of recourse.
This means that with recourse factoring, the factor can ask you to pay any invoices your clients are unable to pay.
No doubt, this is an advantageous system for factors because they know they will always get paid, either by you or by your clients. However, you face a higher level of risk, because if your clients can’t pay for whatever reason, then you’re on the hook for those unpaid receivables.
Non-Recourse Factoring
Unlike recourse factoring, with non-recourse factoring, the factor does not have right of recourse.
In other words, with non-recourse factoring, the factor absorbs the risk of any non-payment. If your clients can’t pay, it’s the factor’s loss, not yours.
Needless to say, non-recourse factoring can be a great alternative because in addition to accelerating your revenue it also protects you from bad debt.
With non-recourse factoring, the system works in your favor, giving you the confidence — and cash flow — you need to move your business forward.
ACS Factors: We Turn Your Invoices Into Cash
We are a Factoring company located in Upland, California, with many clients nationwide in the distribution and logistics corridor which includes Ontario, Riverside, Fontana, Jurupa Valley, and Moreno Valley.
Contact us today by email (info@acsfactors.com) telephone (909-946-5599), or through our social media accounts on Facebook, Twitter, and YouTube, and start enjoying the convenience of converting your accounts receivable into cash today!
