Invoice factoring is the better and safer financial help you can get

Factoring has been practiced over the years and is very common today. This is a method alternate to the usual method of loaning amount from banks or mortgaging. This method is called asst based financing. Which means you are getting money based on an asset you already have? The asset in this case is the invoice you get when a transaction you make with the customer. The main reason that people prefer this method is because invoice factoring speed up your cash flow. This is a safe and easy way to finance your business and prevent the business from falling over a cash blockage. You don’t have to worry over the paperwork or the loops and clauses in this method as in conventional finance methods. There are two types of factoring, one is recourse factoring while the other is non-recourse factoring.


Recourse factoring:

In this type of factoring the customer and you make a business transaction. Which means an invoice is created. The invoice is then sold to the factoring firm. You take the responsibility if the client does not pay back. The factoring firm pays you a good part of the invoice. The customer when pays, pays it to the factoring firm. The rest of the money is paid to you once the factoring firm receives it from the customer. The fee levied will be small.


Non-recourse factoring:

This method has the same principle as that of recourse factoring but has a major difference. In this method, the customer buys an item from you and an invoice is created. The invoice is again submitted to the factoring firm. The firm takes up the responsibility of the invoice. Which means the factoring firm takes up the liability of customer nonpayment of the invoice. The factoring firm pays you most of the invoice money. In this method the fee levied by the factoring firm on you is higher.


Hence you need to select which method is ideal for you and proceed forward. The factoring method differences are based on whether you know that your customer will pay you immediately or whether the customer has the chance of nonpayment. In the second method of non-recourse, method you don’t have to take the liability. This can be followed for customers whose repute is doubt full. In this method the fee levied is high though. So analyze and then decide which method needs to be followed.

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