In factoring invoices, normally the factors provide two types of account receivable factoring called recourse and non-recourse factoring. Factoring with recourse method means you need to buy back the unpaid invoices from the factor when the invoices left unpaid within the recourse period and the risk of this type is shared by the factor and the client. Bothe the factoring types have benefits and pitfalls and you need to consider that in your decision process before making the factoring agreement.
Invoice freight factoring is not suitable for every business owner. If your business involves more transportation, then you can consider invoice factoring. When shipping to other cities or countries, you must know the foreign trade regulations, any special requirements for any particular country etc. You can find the SED rules and regulations of the US government from the website http://www.census.gov/foreign-trade/regulations/forms/qanda1.pdf.
The main benefit of choosing any factoring type is you can get immediate cash flow for your business. It is considered as advance money you receive for your cash receivables. You skill to manage the cash flow benefits or hurts your business. Though you directly get payment from your customers for the invoices, most of the customers make slow payments and it would not help when you need cash immediately for your business. Thus freight factoring is the best option to meet immediate cash requirements of your business.
You must be very careful when choosing a freight factoring company and stay away from the dishonest and less popular company. In addition to this, you should aware that factoring not free of cost and you need to pay the fee based on the risk shared by you with the factor. It is up to you to choose the right factoring type based on your business demand.
In many industries, recourse factoring method is common since the factor shares the risk with the client who sells the invoice. Recourse factoring is also cheap factoring method when compared to non-recourse factoring since factor holds the risk. Also, if your customers rarely fail to make the payment, then recourse factoring is the best option because it is confident that they pay the invoices without fail and our factoring fee will be less.
The disadvantage of recourse factoring is sometimes you need to buy back the invoices when you or your factor cannot collect the payment for the invoices within the specified time as per in the agreement.
You can go for non-recourse factoring when you cannot predict when your customers will pay the invoices or else when you don’t like to share the risk with the factor. If you are doing transportation, oil, and gas, construction business then you can use non-course factoring type. Because of higher risk, non-recourse factoring costs high than recourse type.
Whatever may the factoring type you select for your business, you must weigh their pros and cons of each type of factoring. And understand that the higher risk you take in factoring normally reduces the factoring fee you need to pay.