The Factoring industry keeps changing day by day. It is now easier for small businesses to get funded than it was a few years ago for example. Newer companies are also introducing new rules. And due to this, there have emerged several types of factoring services you should probably want to know about. The following four are some of them.
With this strategy, the business owner assumes costs for invoices not paid within a specific time frame. It is one of the most common strategies in the industry. It also attracts a range of competitive rates because the factoring company doesn’t have a lot of risks to take. To small and medium businesses that find it difficult to get funded, the recourse strategy offers a cost effective and readily available method of getting financed when you need the money most.
Basically, non-recourse factoring is the opposite of recourse. Here, the factoring company assumes responsibility for all customers, and they will take responsibility for all customers. But as you would expect, nonrecourse services cost a lot more than other services. They are however a great option if your business can’t afford the hassles that comes with legal work until the customer is forced to pay their dues.
This strategy is no different from the recourse classification. In fact, it is common to hear people refer to invoices and accounts receivables interchangeably in this industry. All the same, the strategy here is to offer your accounts receivables as collateral in exchange for instance cash. Depending on the company you choose to work with, you may even offer older invoices as part of the account receivables, albeit with a higher fee. With this strategy you can hear the term accounts receivable discounting. It is a hybrid strategy, where the factoring company may choose to collect the debts or leave you to do the debt collection work.
If you choose this method, your factoring company takes charge of all your invoices. The company manages their collection, works on the payment schedule with customers but pays you ideally on the date when all customers were supposed to complete their payments. That means you get all payments minus the company’s fees irrespective of whether all customers completed the payments or not. The strategy however attracts higher fees, but it is a great option where you need to maintain stable cash flow for your business.