When you use invoice factoring to handle all your company’s accounts receivable, you automatically get rid of the usual headaches that come with collecting on your open invoices. Because the factoring company you use handles all duties related to your receivables, you won’t have to send out payment reminders to your customers. But, what if your customer doesn’t pay your invoice at all? This is where non-recourse factoring enters the picture.
Below, CommonwealthMN.com shares more information about this option:
Non-Recourse Factoring Defined
In general, non-recourse factoring affords you the benefits of invoice factoring, but without having to take responsibility for your customer’s debts. For example, non-recourse factoring companies won’t ask you to pay for an invoice if one of your customers goes out of business. On the other hand, this invoice factoring option carries a higher fee since non recourse factoring companies carry most of the risk. But, the higher cost may be worth your money if you’re worried about potential non-paying customers.
Does Your Company Need Non Recourse Factoring?
Basically, this factoring option is generally recommended for businesses that have customers with exemplary payment records since even the biggest and most profitable companies can go under. If your customer goes bankrupt, and you don’t have a non-recourse factoring agreement, you’ll be stuck with their unpaid invoices.
But, you can still consider non-recourse factoring even if your customers have less-than-perfect payment records. The factoring company will approve a certain dollar amount that you can have in open invoices to each customer. In this context, non-recourse factoring can serve as your financial backstop against credit losses on your smaller customers as well.
In addition, you won’t have to do anything to get your invoices paid as the factoring company will do it all for you. With recourse factoring, however, if your customer is running late on a payment, your factoring company will ask your company to repurchase the invoice. Then you’ll be responsible for the tedious task of issuing calling up your customers to pay their invoices. With non-recourse factoring, you won’t have to worry about these kinds of stressful situations.