Recourse vs. Non-Recourse Factoring

When you are thinking about entering into a factoring relationship, one important consideration is the whether to utilize a recourse or non-recourse factoring company. It is important to understand the difference as it relates to non payments from your customers. In a non-recourse situation, the factoring company takes the loss from bad debts. With a recourse factor, you must either reimburse the company for the advance or replace it with another invoice of similar amount.

Not only can the type of factoring arrangement have a profound impact on the rate you pay, it can also effect the way you do business. One client spent a lot of time setting up a line with a well-established non-recourse factoring company only to find out that the terms of the contract made it very difficult for the customers to make product returns. Had he gone through with this relationship, it likely would have disrupted his business and alienated customers.

Just like any contract, make sure you clearly understand the terms on the front end before signing on the bottom line.

Need working capital from invoice factoring? Click here to apply.

Kent Harlan, CPA
Ozarks Capital Funding, LLC
www.ocflink.com
417.849.7394
kenth@ocflink.com