For a business that is going through such a phase in its lifetime when there is such a speedy growth in its operations or is experiencing some rapid changes, then it so follows that there will be such a time in it when you will have a need to access funds much faster than what your accounts receivables can keep up with. When such is the case and in order to escape the danger of facing a cash flow crisis in their operations which would result in other subsequent business failures, it is often the case that businesses turn to alternative funding.
Bank loans are an option but they are not the only solution you have to make use of. At such times and when faced with such needs as a going concern, you will do well thinking of invoice factoring as a sure solution to go for. Talking of invoice factoring, this is the practice of selling the unpaid invoices you have from your clients to a third party known as a factor who will then pay you an agreed percentage of the dues on the invoices. They later collect the payments from your clients directly.
Now that you have decided that you will be going for invoice discounting, then the next thing that you are to do is to settle for the invoice factoring partner or accounts receivable financing partner that you will be working with going forward. The need to settle for an accounts receivable financing partner is not an easy one for a number of reasons and for this need, we have listed some of the most critical elements that you should look into as you settle for the best invoice factoring partner for your business.
One of the things that you are to look at is the type of factoring that they offer. By and large, invoice factoring can take two forms and these are, the recourse and the non-recourse factoring. When it comes to the recourse factoring, this is generally where the customer whose invoices are being factored assumes the risk and guarantees the invoices and as such in the event that there is a default or failure to honor the invoices bought, then the customer will have to buy the defaulted invoices back. Talking of non-recourse factoring agreements, these are where we see the factor being the one on whom there is transferred the resposbility of taking the risk and guaranteeing the invoices and as it sounds, it happens to be less common. Besides the fact that it is less common, non-recourse factoring as well happens to be quite costly as we can see from the kind of settlement it sees the factor in.