Recourse Factoring vs. Non-Recourse Invoice Factoring?

What is the Difference between Recourse vs. Nonrecourse Factoring?

Non-Recourse Factoring gives you Bad Debt Protection from Bankers Factoring.

Why Pick a Factoring Company without Recourse Back to You or Non Recourse Factoring?

What is A/R Factoring vs Credit Insurance?

Regarding credit risk, there are two types of invoice factoring or A/R factoring: recourse factoring or without or non-recourse invoice factoring. What do we mean by “recourse”? Full recourse factoring means you take the non-payment and credit risks if your customer doesn’t pay their open accounts receivables or the open invoices they owe you.

Recourse factors or receivable financing lenders will charge you back unpaid invoices in 60 to 90 days.

Why should you prefer nonrecourse factoring? Staffing agencies and trucking companies selling to truck broker customers with extended payment terms are especially vulnerable under recourse factoring versus non-recourse factoring. Charging back invoices over the due date and 60-day-old invoices from clients can cripple your working capital needs and run your small business out of money. Unless you are selling to Walmart or the federal government, your business needs a non-recourse factor to advance funds that are safe and secure. Don’t be saddled with unpaid debt. Factor on a non recourse basis.

Please read what is better, recourse or non-recourse factoring when it comes to bad debt from uncollected accounts receivable.

Understanding Recourse vs. Nonrecourse Financing

Recourse Financing

In a recourse financing arrangement, the borrower is personally liable for the debt. This means that if the borrower defaults on the loan, the lender has the right to pursue not only the collateral but also the borrower’s other assets to recover the outstanding amount. This type of financing tends to have lower interest rates as it carries less risk for the lender. Lenders often feel more secure knowing they can claim personal assets if necessary, which can also benefit the borrower through potentially better terms.

Nonrecourse Financing

Conversely, nonrecourse financing limits the lender’s recovery options strictly to the collateral associated with the loan. In a default, the lender can only claim the specified collateral and cannot seek compensation from the borrower’s other assets. This arrangement typically results in higher interest rates since lenders assume a greater risk. It is often used in real estate transactions, where the property is collateral, and investors seek to protect their personal assets.

When evaluating the suitable type of financing for your business or investment project, consider the following:

1. Risk Tolerance: Assess your willingness to take on personal liability. If minimizing personal exposure to risk is a priority, nonrecourse financing may be preferable.

 2. Cost of Financing: Understand the implications of interest rates. Recourse loans may offer lower costs but come with increased liability.

3. Asset Management: Consider how each financing option will affect your overall asset protection strategy. Nonrecourse financing can provide a safety net in turbulent times.

4. Investment Goals: Different funding methods may align better with specific investment strategies, particularly in industries like real estate or specialized ventures.

5. Your customer going bankrupt: With nonrecourse factoring, Bankers Factoring takes the risk of your customer filing bankruptcy.

Both recourse and nonrecourse financing have their advantages and drawbacks. A thorough evaluation of your financial situation, risk profile, and long-term goals will assist you in making an informed decision.

Understand a non-recourse factoring agreement.

Without or non-recourse means that Bankers Factoring, as part of our non-recourse factoring services, is taking the credit risk. This typically includes the risk of bankruptcy, insolvency, or protracted slow pay by your customer, the account debtor. The factoring company assumes the non-payment risk for credit, and Bankers pre-approves your new clients. Bankruptcy risk and protracted slow pay are the key differences between recourse and nonrecourse factoring.

B2B credit risk management is included in our factoring service pricing. Bad Debt Protection makes sense in these volatile times and may save your business. Remember, your customer is your de facto borrower, and you are their short-term lender. Don’t let your “business loan” to your customers go bad. bad debt can run your bottom line.

Should You Buy Credit Insurance versus Using a Non-Recourse Invoice Factoring Company?

You could buy your own credit insurance policy, but the upfront premium for A/R insurance starts at $15,000. Bankers Factoring buying your accounts receivable insurance at a cheaper rate than you could is a good option. Also, understand in your factoring contract what is covered when it comes to customer default and what non recourse factoring means, and how it is defined.

As part of Bankers Factoring Without Recourse Funding, you get an easy-to-understand factor fee, no hidden fees, and unlimited working capital reflected in our non-recourse factoring agreement. You also get 24 hour online AR reporting, and our stellar customer service. When your customer pays the invoice, a color copy of their check and remittance advice loads into our cloud-based reporting system. Business Owners like how invoice factoring works from Bankers Factoring. We offer two types of factoring: recourse and non-recourse accounts receivable factoring. We will discuss the advantages and disadvantages of both kinds of A/R financing.

Bankers Factoring Takes the Credit Risk

Typically, Bankers Factoring does take the credit risk (as defined above). In that case, it is important to understand that you are still responsible for the quality and performance of your product or service and for meeting your contractual terms with your customer (the account debtor). You will only have to replace or buy back the invoice you sold to us for the cash advance if there is a quality or performance issue. Back-office support issues and stressing over on-time payments have become a thing of the past. Non recourse factoring is about the same cost as swiping credit cards for you. We become your credit team, and your credit problems go away with our collection efforts. No more bad invoices as part of your non-recourse agreement.

Client Responsibility in Non-Recourse Factoring

The terms required by your customer may include insurance requirements, return policies (both known and hidden), duration, shared costs, termination steps, warranty, training, security, business practices, intellectual property, vendor code of conduct, and treatment of confidential information under the account debtor’s vendor agreement and/or purchase order(s).

Here is an example of Microsoft’s 16-page Vendor Agreement, and here are Walmarts Supplier Requirements.

Sadly, we have noticed over the years that our client inevitably takes a hit whenever we decline an account debtor (your customer) for credit reasons, and our client sells them without credit protection from us. Sometimes those hits have been fatal to our client’s credit lines and their business. 

What Happens if You Offer Terms Without Bad Debt Protection?

Remember, there is only one thing worse than no sales: making the sale and NEVER getting paid. Poor payment history is the first clue whether you want someone as a customer or not. Non-payment of an invoice destroys your cash flow.

As a small business owner, you worry about a big customer refusing to pay and 90-day credit terms. You know you need credit protection, but is the recourse versus non-recourse invoice factoring argument confusing?

The decision you make about recourse or non-recourse factoring comes down to a few key questions.

If you sell to Walmart, credit is a non-issue; your fears are returns, dilution, and chargebacks. The only disadvantage of nonrecourse factoring is if your customer doesn’t have a AAA credit rating. If a company with minimal credit information or a leveraged balance sheet is your biggest client, then having Bankers Factoring take the credit risk might be your key to survival. That is why Bankers Factoring is a good option and the best non-recourse factoring company with lower fees, a higher advance rate, and lower rates. We vehemently believe non or without recourse is the best type of factoring.

Factoring Receivables Without Recourse

Let Bankers Factoring design a factoring plan that puts the safest working capital in your pocket. We can provide you with the type of factoring you need, not the recourse factoring you are being sold. With our easy onboarding process (compared to other factoring companies), readable factoring contracts, and a fast release of your reserve on invoice payments, which is why we are an award-winning factoring company when it comes to non recourse factoring companies.

Recourse vs Non-Recourse Factoring is about Catastrophic Risk

We are the lower-risk factoring company choice versus other factors. We understand your cash flow situation and want to be your non-recourse factor financing company with immediate funding. Sleep better at night knowing Bankers Factoring has your back with non recourse factoring, and cash flow issues are a thing of the past. Let us collect payment on outstanding invoices and then give you a fast reserve account release versus waiting for a customer to pay an invoice.

The Positives of Non-Recourse Factoring

• High advance rates and low factor fees are like credit card interest rates.
• Based on your customer’s credit profile and payment histories, not your credit score or track record.
• Special trucking company factoring programs.
• Easy to qualify for versus bank loans. Bankers Factoring’s application process is simple.
• Easy to understand non recourse factoring agreements.
• Offices throughout the United States.
• Both short term and long term agreements are available.
• Offer credit terms and grow your customer base.
• Both recourse and non-recourse invoice factoring are available.
• We will set your customer’s credit limits. Credit problems are gone with our credit checks of your customer.

Read more about our Bad Debt Protection with Accounts Receivable Factoring.

Without Bankers credit approval and their non-recourse factoring, I couldn’t have picked up my largest client and fixed my cash flow with their cash advances.

Tom J, Oil Patch Contractor

Your email address and website get you started on fast funding with no credit risk based on your open accounts receivable from Bankers with a low factoring rate. We are one of the few award-winning non-recourse factors. Let us help your credit problem go away as your factoring company with over a decade of experience taking the credit risk.

Turn your creditworthy customers into a same-day working capital factoring credit line with Bankers, awarded one of the best invoice factoring companies for entrepreneurs and their operations, and the very best clients partner.

Why Bankers Factoring | Trade Financing & Purchase Order Funding | Invoice Factoring vs. A/R Based Line of Credit

Ready for the owner-employees of Bankers Factoring to fund your entrepreneurial dreams with non-recourse factoring? Call 866-598-4295 or go to Bankers-Factoring-Application.

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