When choosing a factoring company, it’s essential to understand the difference between recourse and non-recourse factoring. Recourse factoring means that if the factor cannot collect payment from your client, you are responsible for repurchasing the invoice or providing a replacement invoice of equal value. This option is generally more affordable, as the factoring company faces less risk.
Non-recourse factoring, on the other hand, means the factoring company assumes the risk of non-payment. If your client fails to pay the invoice, the factor absorbs the loss, and you are not held responsible. Non-recourse factoring can be more expensive due to the increased risk to the factoring company.
When comparing factoring companies, it’s crucial to consider which type of factoring best suits your business needs and risk tolerance.