Tag Archives: Non-Recourse Factoring

Deciding Between Full-Recourse And Non-Recourse Factoring

 

When it comes to freight factoring, each one has a different need. Depending on the business and the circumstances, there has to be customized services that can be offered to customers. The most common types of factoring are full-recourse and non-recourse factoring. Unless the different between recourse vs non recourse factoring is understood, you might not be able to make the right decision about choosing one of them. Factoring is the alternate method of finance that gives the option of allowing the business wonder to sell their invoices to a third party. This helps in getting the necessary funds that keeps the business going. http://www.businessnewsdaily.com/9336-choosing-factoring-service.html has more information f you would like to understand more.

Full-Recourse Factoring
This is the most common type of factoring where in case the customer fails to pay the invoice within the specific time period, the invoice can be bought back. Depending on the advance amount that has been paid, you will be able to get the money. Usually, the recourse period is a about 90 days. This means that if the full amount cannot be collected, the invoice will be charged back to the customer. Usually, the companies check the customer’s credit before signing them up. Any collections and chargebacks will also be done by the freight factoring company itself. It is very uncommon for a customer to short pay on an invoice that has been generated. In case that happens, the factoring company will help recoup the difference amount.

Non-Recourse Factoring
This method is mostly misunderstood by many people. In case of non-recourse factoring, if the customer fails to pay for reasons pertaining to his credit, then the factoring company will take up the loss. If the reasons are outside the credit window, you have to take care of it. For example, if the customer has not made the payment because they are bankrupt, then the factoring company can accept the loss. If the non-payment of the invoice is due to any other reasons such as non-delivery or a dispute, the customer has to take up the losses. The risk of non-payment s more in this case as there are certain conditions for accepting non-payment.

Full-Recourse Factoring Or Non-Recourse Factoring
Choosing between these two options can be very confusing. Non-recourse is not a good option if the freight charges are huge. The risk you take with non-payment can be huge. Before deciding to let go of this option, you need to think about how many invoices have been lost due to the customer filing for bankruptcy. If the unpaid invoice number is less, it is better to go for a fill-recourse option. If the answer to the unpaid unpaid invoice is more, then you can think about choosing the non-recourse program. In case you are still not sure, you can speak to the factoring company itself to get a better idea of both the options.

Most of the freight companies have both the options for the customers. understandably, the fee for non-recourse program will be more than that of the factoring fee itself.