Invoice Finance Guide
Recourse / Non Recourse Factoring |
What is the difference between recourse and non-recourse financing?
In a normal recourse factoring agreement if an invoice remains outstanding for more than an agreed period the money borrowed against that invoice from the factor must be repaid. Depending upon the size of the unpaid invoice this may cause a significant impact on the cash flow of your company until that cash can be collected.
Non-recourse factoring has been created to provide a solution to such potential problems by combining a credit protection policy with a factoring agreement to ensure that once an invoice is agreed to be factored it cannot be placed back with you.
To offer such as service many factoring companies offer the credit protection themselves while other have created relationships with insurance companies who hold the risk.
Non-recourse factoring is more expensive than a normal factoring agreement because of the cost of the addition protection service which is usually charged at between 0.4-0.75% of the value of each invoice factored. The factor will retain the right to exclude some of your clients from this non-recourse cover however they may suitable for normal factoring. In addition, the advance rates against clients may be reduced depending upon the agreement the factor requires.
It is always worth asking for a quote to cover a non-recourse facility while you are enquiring about a normal factoring agreement to allow you to compare costs and asses the potential benefits.
Invoice discounting can also be offered on a non-recourse basis.
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