Recourse factoring is a form of invoice factoring in which your company would be obliged to return the advance money given by a factoring company when customers don’t pay their invoices within 90 days. In some cases, you would also have to pay a fee when this situation arises, because it causes additional paperwork and action on the part of the factor.
One of the most common reasons that customers don’t pay their invoices on time is because of a dispute about something on that invoice. Sometimes this may be the result of a misunderstanding, and sometimes there’s a simple clerical error. Regardless of the reason for the dispute, the factoring company is in no position to resolve it, and therefore has no other choice but to return the invoice to the company. Since this is by far the biggest reason why invoices would not be paid on time, it is certainly beneficial to a company to make sure that all invoices issued to customers are accurate and clearly stated.
This is the second biggest reason why customers would not pay their invoices, which is the fact that they have insufficient credit or cash on hand to cover the cost of the invoice. Situations like this are fairly uncommon, since most factoring companies will have evaluated customer financial status before entering into a factoring agreement. Any customers who have a history of slow payment or non-payment would not have their invoices accepted by a factoring company, which is why this situation seldom comes up.
This type of factoring will be harder for a company to secure, since it leaves the factor exposed to the possibility of financial loss. In non-recourse factoring, when customers don’t pay their invoices, they cannot be returned to the company for payment. This does protect the company, but it leaves the factor exposed, so it’s not often that a factoring company will agree to non-recourse factoring.
Is Recourse Factoring Right for Your Company?
If you’re interested in recourse factoring, contact us at Third Bay Capital, so we can discuss some options which may be available to you. Factoring will put cash in your hands immediately, and it can help with the expense of day-to-day operations.