When it comes to invoice factoring, there are a few routes to take that all lead to the same destination: a cash flow solution. Here at The Commercial Finance Group, we are proud to be a checkpoint on your way to bankability. When businesses cannot secure traditional bank loans for one reason or another, or they simply want an easy way to secure fast funding, the services of a factoring company can help.
Factoring is a major facet of our small business lending company, and there are multiple types of factoring that we offer. They are recourse, non-recourse, full-notification, and non-notification. In today’s blog, we’ll be taking some time to discuss the differences between these so you can get a better idea of what will work best for your unique situation. Of course, we are always happy to get to know your business and discuss your options with you, so feel free to get in touch with our lending experts at any time.
Recourse Factoring
This is the more common type of factoring service. During this transaction, it is agreed upon that the factoring company will purchase invoices from your business for an advance. The factor then takes up the hassle of collecting the invoices from your customers. If, however, a customer does not pay for some reason, then your business must buy the invoices back.
This ensures that you get access to working capital and also encourages you to work with creditworthy customers who pay their debts. This agreement also offers lower factoring fees than non-recourse factoring, which we will discuss below.
Non-Recourse Factoring
This is the less common option for factoring because both the lender and the borrower are at a disadvantage. In a non-recourse factoring agreement, the lender assumes more risk because the borrower will not have to buy back unpaid accounts. However, not all factoring companies offer non-recourse factoring and there are typically more stipulations for these agreements if they do. For example, a factoring company will usually only allow non-recourse factoring if your clients have a good history of paying invoices and this option typically incurs a higher factoring fee.
Full-Notification Factoring
This is the standard factoring option. During this type of agreement, a factor purchases accounts receivable from your company. The factor then works directly with your clients to collect invoice payments. Typically, a factor will send a notice of assignment to your client to let them know about the new payment procedure and they will verify invoices to ensure they are legitimate.
While invoice factoring is incredibly common, some companies may not want their clients to know they are using a factoring service to finance their accounts receivable. Which leads to the second option: non-notification factoring.
Non-Notification Factoring
This type of factoring is much newer and many factoring companies do not offer this option at all. Non-notification factoring limits the interaction between the factor and your client. Any communication between the factor and your clients will be done with your company name and letterhead.
In general, this service has a higher fee than traditional factoring and typically has stricter requirements for you and your clients to meet.
The Bottom Line
There are always ways to protect yourself and your business from a bad factoring situation. First, be sure that you are working with one of the best factoring companies in the business. At The Commercial Finance Group, we pride ourselves on our 40-year track record of providing excellent service to our clients who are working their way up to bankability.
After you find a good factoring company to build a bond with, focus on working with creditworthy clients. That way, your recourse factoring is more likely to go smoothly and you might also be eligible for non-recourse factoring.
Choose The Commercial Finance Group Today
As your factoring company, we work hard to find a customized solution to your cash flow problems, securing you the working capital you need to run and grow your business. When it comes to factoring services, there is no “one size fits all” option. To find out what type of factoring services your business is eligible for or would benefit the most from, get in touch with our financial experts today.
