Factoring With Recourse Or Without

Should you take out Factoring With Or Without Recourse? Lets explore what the difference is between the two and compare the options.

In case you don’t already know Factoring is a type of Invoice Finance facility, used by businesses in the UK. It allows companies to access money from unpaid invoices and could be considered an alternative to a business loan.

When the customer invoice is paid, the factoring company is paid back its money. However if a customer does not pay the invoice, then this deducted from the available funds.

To avoid this happening, you can take out factoring without recourse (non-recourse) were the finance company takes full responsibility for any bad debt.

Lets look at each option below.

Factoring With Recourse

Most factoring facilities are set up on a recourse basis. That means that any new invoices are purchased by the bank or lender and the funds made available up to an agreed percentage (e.g. 90%).

  • Funds released from invoices up to 100%
  • Any unpaid invoices must be repaid

Usually any unpaid invoices are deducted from the available facility balance after a set period, this could be 60 or 90 days.

Factoring Without Recourse

Although less common, some finance providers will take on full responsibility for invoices that they purchasing under a factoring agreement.

These facilities will be more expensive as the funder is taking on a bigger risk that the invoice may not be paid. They will also take action to recover funds from unpaid client invoices.

  • Funds released from invoices up to 100%
  • Factor take full responsibility for the invoice
  • Unpaid invoices not deducted from available funds
  • Bad debts collected by factor

Most providers are more likely to offer Bad Debt Protection (BDP) as an optional extra. See more about this below under alternatives.

Alternatives To Non-Recourse Factoring

There are other ways to take out protection against non-payment of customer invoices.

Credit Insurance – This is a stand alone insurance facility that insures you against non-payment of invoices. An Invoice Finance company may request to be noted on the policy if they are providing funding.

Bad Debt Protection (BDP) – Similar to non-recourse factoring. You may be able to add BDP to some or all of your invoices on your facility for an extra charge. Some times lenders may make this mandatory to release finance against certain sectors or companies.

Either Credit Insurance or Bad Debt Protection could provide similar cover against non-payment of invoices. Its worth comparing different options as one might be cheaper or better suited, dependant on your companies individual circumstances.

Click here to continue reading and find out more about Invoice Factoring facilities.

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