Paragon Financial

What is Invoice Factoring without Recourse?

What Is a Non-Recourse Factoring Agreement?

Thinking about invoice factoring without recourse for urgent cash flow or for working capital to grow your small business? Well, it may seem like there are a lot of factoring options out there for small business. Yet, all accounts receivable factoring options are not equal. Likewise, factoring companies (also known as, “factors”) are not all the same. Many factoring companies only offer factoring “with recourse.” More experienced and long-standing factoring companies offer factoring “without recourse.” 

Invoice factoring without recourse or non-recourse factoring is an agreement within a factoring contract where the factors client does not have to pay back the factoring company if an invoice is not specifically paid due to bankruptcy of the client’s customer (the Account Debtor) under an invoice with credit protection in place.

With a recourse arrangement, when purchased accounts are not collected by the factor for any reason within a relatively short time, the factor has recourse to charge back to the client the net value of an unpaid invoice. When your company enters into a non-recourse factoring agreement however, your business is protected against extreme situations that prevent your customers from paying an invoice.

Whether a factor offers your company invoice factoring with recourse depends on:

A typical non-recourse factoring agreement offers the following basic features:

How Does AR Factoring Without Recourse Help Your Small Business?

First of all, factoring is the purchase of a company’s accounts receivable as opposed to a loan that creates debt on your business balance sheet. You speed up your cash flow by leveraging, or selling-off, the accounts receivable assets your company already has on its books. Factoring focuses on the creditworthiness of your customers, while bank loan departments would focus on your company’s financial history and cash flow. Accounts receivable funding is not a loan. So, your company ends up with less balance sheet debt.

A well-established factor providing AR factoring without recourse helps your small business by:

Which Businesses Benefit from Invoice Factoring Without Recourse?

Many different lines of business benefit from invoice factoring, sometimes also referred to as discount factoring. Some people refer to invoice factoring as discount factoring when the factor purchasing an invoice from its client charges a factoring fee, and then the client thinks of the factoring fee as an amount discounted against the full value of the invoice otherwise to be paid by the client’s customer. Companies that do very well when taking advantage of invoice factoring without recourse include:

As well, companies that leverage invoice factoring without recourse also include industries and businesses facing:

What Is the Cost of Non-Recourse Factoring?

Are there differences in cost between recourse and non-recourse factoring? Many factors without a strong portfolio of clients will charge higher fees for non-recourse factoring than they will for recourse factoring in order to offset their costs for taking a bigger risk with non-recourse factoring. While a factoring company with a deep and solid portfolio, provides the value of non-recourse without passing-on any additional cost to the client. Computing invoice factoring rates using an online Invoice Factoring Calculator provided by a factor that includes Credit Protection & AR Management in the factor’s accounts receivable financing gives you a view of the costs associated with non-recourse invoice factoring.

To use the calculator, you will need to be able to answer the following questions about your receivable accounts:

How Does a Small Business Apply for a Non-Recourse Factoring Line of Credit?

Another way of looking at invoice factoring is to look at how the typical non-recourse factoring agreement works with a credible established factoring company:

Much like you would expect when applying for a typical secured line of credit, it makes sense for a small business to apply for non-recourse factoring financing by completing the following steps:

Funding via non recourse invoice factoring has never been faster or more secure for your small business. Apply for fast, secure funding now or contact our National Sales Manager, Chris Curtin via email or 888-400-5931 ext 1.

Money When Your Business Needs It Most!™