Non Recourse Factoring
- Non-recourse factoring financing( assignment/purchase ) vs Bank Loan, Non recourse will eliminate your debt without taking on more debt.
- No more juggling of finances, hitting your overdraft limit and/or incurring bank charges.
- Quick cash without a business plan or tax statements.
- Business receiving the cash advance is NOT responsible for the future repayment of the payable invoice, Sell your invoice and forget about it. The lender takes the risk and not you.
- If the invoice is not paid, the business receiving the cash advance is not liable; the non recourse factoring companies take 100% credit risk.
- In a non-recourse arrangement, a company is not required to show the advances as a loan, as it is a true purchase and sale transaction. ( Debt-Free Transaction )
A recourse factoring company will require a company to satisfy any shortfalls on a batch of receivables which would NOT be true if you had a non-recourse factoring. If you were to sign up for recourse be aware of the guarantees you give, especially personal ones. The last thing you want to do is write a personal check to make up the difference! The factoring company does take much more risk with non recourse finance factoring and is the reason the cost may run from 1 to 2 points higher but a great opportunity for start ups and small to medium size businesses. In the past, we have seen more trucking and freight companies using non-recourse factoring.
As the recourse vs non recourse table below demonstrates, non recourse has the effect of improving your working capital ratio.
A strong working capital ratio makes it easier to raise additional funds in the future.
| Recourse Factoring | Non-Recourse Factoring | |
| Current Assets |
||
| Cash | $90,000 | $90,000 |
| Accounts Receivable | $20,000 | $20,000 |
| Inventory | $25,000 | $25,000 |
| Total Current Assets |
$135,000 |
$135,000 |
| Current Liabilities | ||
| Accounts Payable | $30,000 | $30,000 |
| Due to Factor | $80,000 | $0 |
| Deferred Taxes | $2,500 | $2,500 |
| Total Current Liabilities | $112,500 | $32,500 |
Working Capital Ratio |
1.2 |
4.15 |
Amazing Fact: Many business failures are profitable when they go under. This cash flow calculator shows you how business-to-business sales, carrying inventory and rapid growth can absorb a business money. Change the variables on the calculator and watch their impact on real business cash flow.
