Types of Business Factoring
You will need to know that there are two main types of business factoring services your business can work with: recourse and non-recourse. Once you have decided that a factoring company is the best solution to amend your financial problems, you will need to decide which mode of factoring service will best benefit your situation. Surprisingly, choosing which option is right for your business will be best determined by how much you trust your clients to pay off their open invoices.
Recourse factoring is like owning a vehicle with limited insurance coverage. If you damage another person’s property or get into an accident, then those costs to repair the damage of your and the other persons vehicle will be paid by your own pocketbook. Like limited insurance for vehicles, the most appealing benefit of recourse factoring is the generally more affordable costs. Keep in mind that with recourse factoring, if one of your clients is unable to make payment on their invoice, the money owed will come out of your own pocket. Although to some business owners, it appears that this type of factoring service will initially save you money, you will most likely be forced to pay more if your clients are not reliable enough to pay off their invoices.
With non-recourse factoring, the factor, or insurance company in this analogy, assumes all the responsibility and risk if the business client cannot pay their invoice. When your business chooses to work within a non-recourse factoring agreement, the factor assumes all financial responsibility for unpaid invoices. While this is a nice cushion to have, just as full-coverage auto insurance is more expensive than basic car insurance, you should expect a more substantial increase in the total cost for non-recourse factoring services.
Ladies Who Launch
Compare Factoring Loans
Although non-recourse factoring services are more expensive, if you believe that your clients will be unable to make their payments, it may be the best option for your business to stay in the green. You can never be too sure if you will need your factor to assume all financial responsibility, so as the saying goes, it is always better to be safe than sorry.
Types of billing
Depending on your industry and the way your business is setup, you will generally submit invoice to your clients in one of two ways: with progressive billing or non-progressive billing.
Progressive billing services generally require more effort and ongoing contact between your client and the account receivable factoring company. Business owners working with a smaller budget should know that using factoring services for accounts that require ongoing payments will require higher fees than non-progressive billing. Keep these types of billing in mind when determining the best way to maintain the profits of your business, as well as the relationship with your customers.
Non-progressive billing is the process of invoicing your clients a single time for one-time goods or services. This method is most affordable when it comes to protecting the services of a factoring company. Progressive billing is used by companies to collect payments in installments or as ongoing payments for the provided goods and services.
