While hiring and signing a factoring company one has to consider many factors. If one signs a recourse factoring agreement, this individual is responsible for reversing the buying process of the invoices that are not settled by the concerned client over a period of time such as sixty or more days. This situation simply implies that the concerned factoring company still have a ‘recourse’ as they could not able to collect the payment from the defaulted client. To overcome such situation and to reduce such occurrences of charging back, most of these factoring firms offer credit checking facilities to their clients who utilize their services. This is done as an additional service in order to help such clients. In addition, they also educate the clients in the area of ‘managing receivables and reporting’. Though these additional services minimize the number of defaulters the ultimate responsibility of the unpaid receivable lies with the client of the factoring companies. Overall, the concept of factoring accounts receivable with Interstate Capital looks to be a desirable option for the business owners as it increases the cash flow. Here the credibility of the concerned factoring firm is vital and Interstate Capital has been highly ranked in the Google.
Aware of mixed and non-recourse factoring
For those who sign a non-recourse agreement, the risk of non-payment by the client completely rests on the individual, irrespective of the reason. Since this type of recourse increases the risk for the factoring firms, it may even charge higher rates than the normal recourse factoring. As a typical 80-20 rule , where a large portion of business comes from a small number of customers, the aspect of non-recourse factoring can surely insulate the business from the financial threats faced by the concerned client.
With the so-called mixed or modified recourse factoring, the factoring companies carry receivable-insurance in order to insure against any type of non-payment if a client could not able to pay due to some reasons like bankruptcy. In the case where the non-payment is due to other reasons, the business owner should buy back the invoice from the factoring firm as stated in the initial agreement. Also, the business owner has to collect the payment on his own. By and large, the factoring companies always prefer recourse over non-recourse factoring as it allows them to do more businesses through large advances to increase their profits. On the other side, if a business owner uses a recourse factor and takes the responsibility of the credit risk by himself, the factoring firms offer their services at a lower rate.