3. Types of Factoring and Billing Options

  1. Receivable factoring is technically defined as selling invoices to a factoring service (similar to a business cash advance), but you do have options when it comes to the type of factoring you seek:

    Recourse Factoring

    “Recourse” factoring is similar to a home or car loan.  In a traditional business receivable factoring transaction, customers whose invoices have been sold make payments directly to the factoring service.  In a recourse transaction, you “guarantee” their payment by offering to pay yourself if they default- often by pledging collateral such as equipment, property, or business assets.  Recourse financing is less expensive, fee-wise- since there is less risk to the factor, you’ll be able to get better rates.

    Non-recourse Factoring

    This type of factoring is riskier for the factor, but safer for you- if customers don’t pay, the factor can’t come after your business to cover their debts.  Since the factoring service is placed in a riskier position, you’ll pay higher rates for this type of transaction.

    Billing Options

    The way you bill your customers can also impact the rates you qualify for- or even if you qualify for a factoring service at all.  Non-progressive billing where customers are billed for each order or product purchased individually, is preferred by factoring services.  Progressive billing, where you collect installment payments from customers or bill monthly as part of an ongoing contract, is more difficult for a factoring company, because it requires ongoing interaction with customers.  As a general rule, the less work the factor has to do to collect on the invoice, the less expensive your transaction will be. 

     

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