They won’t be able to take recourse if your customers fail to pay you, unless the non-payment occurs due to fraud or negligence. Non-recourse factoring differs from recourse factoring in that the factoring company accepts the loss for any unpaid invoices. The greatest downside of invoice factoring, however, is that you put your business income at risk and may get into debt if you can't find a way to cover any unpaid invoices. This means you’ll likely get approved, even if you don’t have the best credit score. Since you’ll be responsible for any unpaid invoices, the factoring company won’t have to bear the risk of non-payment. It might also make sense if you’d like to save the most money because it will allow you to sell your invoices at the lowest rates.

If you’re a stable business with reliable clients who usually pay on time, recourse factoring is likely the way to go. Recourse factoring is the most common option and requires you to cover the cost of invoices that your customers don't pay for any reason. There are two types of invoice factoring you may choose to pursue including non-recourse factoring and recourse factoring. You canuse the cash to cover day-to-day operating expenses, pay down debt, or grow your venture. Depending on the factoring company, you may receive anywhere from 70% to 90% of your total invoice value upfront. With invoice factoring, you don’t have to wait weeks or months for your customers to pay you.

Once they collect payments from your customers, you’ll receive the remaining balance, minus a factoring fee. The factoring company will then pay you a percentage of the total value of the invoice. What is Invoice Factoring?Īlso known as accounts receivables factoring, invoice financing, and spot factoring, invoice factoring is a financial transaction in which your business sells its unpaid invoices to an invoice factoring company. Let’s take a closer look at how invoice factoring works so you can determine if it’s right for your unique business. It's an alternative to small business loans and can benefit a variety of small business owners. Put simply, invoice factoring is when you sell your unpaid invoices to a factoring company in exchange for immediate cash. This is particularly true if you have net 30, net 60, or net 90 terms with your customers.

Is your small business dealing with outstanding invoices and slow-paying customers? If so, invoice factoring may be the answer to your cash flow problems.

Government invoice factoring