factoring provider
Check how long it will take for your chosen provider to release funds to you once your account has been set up. [ PHOTO / pexels ]

All business owners rely upon getting paid on time. Typically, after providing a service, your business sends out an invoice for payments. However, waiting for those payments can be lengthy and frustrating. That’s why many companies choose factoring as a means of getting paid faster. It’s a form of financing used by small and medium businesses.

A factoring provider allows them to receive, via their factoring partner (the bank), cash advances on their accounts to get paid faster. However, there are two types of systems offered by banks: factoring and non-recourse factoring. In this article, we’re focusing on non-recourse factoring. Let’s dive in!

What’s Non-Recourse Factoring?

Quite simply, it’s when your bank of choice bears the risk if there is a non-payment of any invoice due to insolvency. It means that you are protected against any credit risk because the bank assumes the risk instead.

By choosing this option, a business effectively sells its invoices to the non-factoring bank, assuming all the risk and responsibility if invoices go unpaid.

Recourse factoring is when you take on the credit risk of your debtors. When looking for a factoring option, it’s vital you understand the difference between the two. So, what to consider when choosing a non-recourse factoring provider? Shown below are some of the factors that must be taken into consideration when doing so.

The Terms and Rates

The types of fees vary between banks. You may be offered a fixed or variable rate, and the more invoices you submit for non-recourse factoring, the less you’re charged. It’s also worth asking about a price break and checking for any additional fees such as for money transfers, software, termination fees, maintenance fees, monthly minimum fees, due diligence fees, and so on.

Look out for:

  • How long the agreement you’re entering into lasts.
  • Whether the contract is automatically renewed after its expiry
  • Whether there’s a fixed notice period if you want to change the way you do business

Your ideal choice of non-factoring provider will show full transparency about their terms and payment conditions, with no “hidden” costs.

Reputation and Longevity

Ask about the provider’s history and research their reputation. Although the number of new banks has been in decline, it’s also essential to check the experience and time they’ve spent dealing with businesses of different sizes recently. Your own balance sheet may be of paramount importance to your company. Still, the provider’s balance sheet also needs to be healthy too.

What Industries Do They Work in?

Check your chosen non-recourse factoring provider has experience working in your line of business. You should do this irrespective of whether you’re a single-person operation or a larger concern with employees. Some examples of types of businesses and industries using non-factoring services include, but are not limited to:

  • Transportation companies
  • Freelancers (PR, marketing, editorial, and design)
  • Retail
  • Manufacturing
  • Construction
  • Commercial services
  • Distribution
  • Staffing agencies

The better your chosen provider understands your business’s particular needs, the better the service you’ll receive.

How Long Does Setting up an Account Take?

All providers have criteria businesses need to fulfill before an account can be set up. They should explain those criteria at the start and how long it will take to set up an account before funds can be released.

Naturally, the provider will need to conduct their own due diligence about your business. Still, it’s worth asking about how long that process takes and whether or not it is automated for speed so that your business and its clients and invoices are verified faster.

How Quickly Does The Provider Release Funds?

Check how long it will take for your chosen provider to release funds to you once your account has been set up.

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An effective non-recourse factoring provider can have funds deposited in your account within a matter of hours and unquestionably no longer than 24 hours after submitting an invoice.

What Is Their Advance Rate?

This is the amount of monies released to you by the provider once you have submitted your invoice. Typically, the provider releases most of the invoice total to you and retains a percentage of the invoice, which is then released to you once your customer settles the payment.

An advance rate is usually between 70-90% of the value of the invoice. Ideally, the factoring provider will have an easy-to-use calculator on their site, so you can see how much you stand to receive when you submit your invoice for payment.

Their Technology

Any active business keen to grow its bottom line needs instant access to their account information. Your chosen provider needs to demonstrate it uses software that is compatible with your needs.

factoring provider
you can find the right arrangement that not only gives you fast access to funds but unlocks the flexibility and terms that work for you. [ PHOTO / Pexels ]
For example, ask how invoices are submitted and whether or not their tech stack offers mobile solutions. Ideally, you want to avoid having to email or mail invoice documents. It’s the provider’s role to make it easy for you to submit your paperwork, not stand in the way.

Their Customer Service

Check their online reviews and how they score on customer service levels. Also, whether or not you’re assigned a real-life person to help you navigate any difficulties or unforeseen issues your business may encounter.

Hopefully, having read the above information, you have a better idea of whether a non-recourse factoring provider is a suitable fit for you and what to look out for when choosing.

With a little background research, you can find the right arrangement that not only gives you fast access to funds but unlocks the flexibility and terms that work for you.

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