Invoices from high-risk companies with low or no credit scores cannot be factored.Some factoring companies only offer non-recourse protection if your customer goes bankrupt or becomes insolvent.But be careful examine the fine print because there are some restrictions. With non-recourse factoring, the factoring company assumes responsibility for the debt and collecting it. In other words, you are ultimately responsible for any non-payment.
In recourse factoring, if a customer doesn’t pay an invoice, you have to “buy it back” from the factoring company and seek payment on your own. What happens if your customer pays the factoring company very late, or not at all? The answer depends on the type of factoring you choose.įactoring companies may offer one of two types of factoring: recourse and non-recourse. For this reason alone, many smaller businesses factor all of their invoices. It also relieves some of the administrative burdens of chasing down payments. Others only factor some, usually for slow-paying customers or on an as-needed basis.įactoring puts cash in your pocket so you can use it for payroll, fuel, and other short-term expenses. Some business owners factor all of their invoices regardless of how fast brokers pay. You can tailor factoring based on your needs. They then collect that same unpaid invoice balance from your broker customer when they payout. Top factoring companies pay you the invoice amount quickly, usually within 24 hours once the invoice has been verified. Factoring is sometimes also called accounts receivable financing. A factoring company essentially buys your unpaid invoices.
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