The Drawbacks of Non-Recourse Factoring

In regular factoring, you receive an average of 80% of the value of the invoices you submit in advance. You get the rest when the customer pays in full, and only after the factoring company takes its percentage off the top. The factoring company has the recourse to get its advance back from you if your customer doesn’t pay within a specified time period, which is usually 90 days. But in non-recourse factoring, the factoring company doesn’t have that option.

This looks like a better deal for you, because you won’t have to return the advance if your customer suddenly declares bankruptcy. But looks can be deceiving, and your non-recourse options may not look so attractive when you realize the consequences.

Limited Invoices for Factoring

The first disadvantage is that some of the invoices that may have been factored would now be rejected. In factoring, the factoring company always investigates the creditworthiness of your customers. If they think that the customer is too risky to extend credit to, then they may refuse to provide an advance or demand higher fees with lower advances.

But with non-recourse, the definition of “risky” becomes broader. Some invoices that would have been factored in the regular recourse factoring method will now be rejected if they pose any kind of risk that they may become bankrupt.

Lower Advances and Higher Fees

Even if a customer is now approved for factoring, the advance you get from the value of the invoice will be lower. In regular factoring you get an 80% advance on average. Now 80% probably represents the highest possible advance you can get. In general you’ll get a lower amount than that, and some small business factoring companies may even just offer 40% of the invoice value.

And yet, while the factoring companies try to minimize their financial risk, the fees they ask for will increase because of the inherently higher risks with non-recourse factoring. The average 3% in fees that factoring companies ask in regular factoring may jump to as high as 6% per 30 days. That’s in addition to other standard fees that your factoring company may charge you with that are part of the non-recourse option.

Affected Customer Relations

When you’re engaged in non-recourse factoring and you have a new customer, your factoring company plays a greater role in how you deal with that customer if you want the resulting invoice factored. The factoring company can determine which customers should be offered credit, and they may even insist on a credit limit for certain customers.

The factoring company may also have a different approach to collections as well. In regular factoring, they can remain friendly when sending reminders, because they know that if the customer doesn’t pay up then you have to send back the advance you got. But now the factoring company may become firmer in insisting that your customer pays on time so they can be sure of getting their advance back from the customer.

All in all, there may be some instances when non-recourse factoring may work very well for you. But in general, you may want to stick to regular factoring so that you can maximize your funding and limit the fees you pay.

Are You Always In Search of Staffing Direct Lenders? Maybe You Need To Be A Better Manager

Running a staffing agency can be a complicated business, and it seems like you always need more cash to cover payroll, supplies, and advertising. If you’re always looking for staffing direct lenders because your customer stopped using your agency or refused to pay for shoddy services, your problem may not be in your choice of workers. Maybe you just need to be a better manager.

How do you know that you’re not quite the staffing agency manager you ought to be? Here are some signs you need to watch out for:

  • You don’t really have in-depth knowledge of every aspect of your business. Just because you took some business classes in your local college and you think that you know the “ins and outs” of staffing companies doesn’t automatically make you a great manager. And it surely doesn’t help if you don’t know about the service side of things.

So you have to know what your people know, or at the very least you learn some things about the work. If your staffing agency hires IT people, then you have to be conversant in IT topics as well. If you’re offering office cleaning services or lawn care services, then you should be aware of basic cleaning or lawn care methods.

  • You’re exempted from your own rules. You need to be part of the team, so the rules that apply to your own people have to apply to you. If you require your janitorial services to wear a uniform while on duty, then when you visit the cleaning sites you have to wear the uniform as well. If you insist that your IT people wear shirts and ties and have short haircuts, then you should also wear a shirt and a tie and have short hair as well.

You’re a manager and not a parent. You can’t just tell your people to do as you say. You have to lead by example.

  • You don’t treat everyone equally. You may think that having favorites is a good thing, but for a staffing company that can really poison the entire workforce. Having obvious favorites (and it will be obvious) can really damage company morale. It makes you look unprofessional and resentment can build up that can discourage your workers from doing their best.

So avoid having favorites and don’t treat people differently because of their gender or skin color. You can like some people more than others, which is only natural, but you have to act professionally and treat everyone fairly.

  • You like to manage everything. Such a tendency is called micromanagement, and it can send everyone working for you on the edge. You have to trust your people to do their work, and it’s best to just leave them if they’re doing their job ably enough.
  • You keep having useless meetings. Make sure that your meetings are actually useful. Often meetings are a big waste of time, so don’t schedule too many meetings just for the sake of having meetings.

Improve you managerial skills, and you may find yourself holding on to your customers because of the improved work quality of your people. Then perhaps your customers will pay on time, and you won’t need staffing direct lenders as often.

What Can You Do With the Money You Receive from Factoring Your Accounts Receivable?

For companies across numerous industries, they don’t get paid immediately for their products and services. Often, the client is another company, which is why you’re giving them a credit term. So you’re left with having to wait 30, 60, and in some cases even 90 days before you’re paid in full. But that’s the wait you avoid by factoring accounts receivable.

This is the main advantage of account receivable factoring. In factoring you get most of the money right away, and you get the rest when the customer pays in full.

Here are some ways which may want to use the money you get from factoring:

  • Cover payroll. This is a huge benefit, because many small businesses can really fail once they start missing payroll and fail to pay their people on time. Employees then start looking for work elsewhere, and work performance suffers because of morale issues.

In many cases, payroll could have been met had your clients paid right away. And that’s what factoring does. You can then cover payroll so you can keep your people satisfied and working at their best.

  • Pay bills. If you have a business, often you have to pay for a lot of things to keep your operations running. You have to cover the rent for the office, and you have to pay for utilities as well. Then of course there’s the monthly payment for all your expensive equipment. You may also need to buy some other equipment on a daily or weekly basis.

If you can’t pay your bills, your business may grind to an absolute standstill. You simply can’t allow that to happen which is often why you need money right away instead of waiting for 30 or 60 days. You have to pay all these bills on time, and with the advance money you get from the factoring companies you can do so with a huge sense of relief.

  • Invest in marketing. There’s no point in selling the best products and services in your industry if no one knows you exist at all. It’s not enough that you offer the best. You have to spread word about it, and you need to convince people that you do offer the best. That’s what marketing and advertising is all about.

Competing for customers can be tough, so you can’t relax. That’s why quite a lot of companies use a large chunk of their capital in marketing so that they can get more customers. The more customers you can bring in, the higher your revenue.

  • Take advantage of supplier discounts. This is math at its simplest. Sometimes the cost of factoring may be less than what you gain when you take advantage of supplier discounts when you pay them early.

There are many things you can do when you consider factoring accounts receivable. That’s the point of factoring—to help improve your business.

The Ins and Outs of Purchase Order Factoring

Some asset based lending companies have a wider definition of what kind of assets can be used as collateral. Most lending companies consider the small business owner’s home as a viable collateral, while others may also accept expensive equipment as security. Some even offer financing based on a company’s purchase orders and accounts receivable, and that’s where purchase order factoring comes in.

Using the Purchase Order

The entire process starts with a purchase order from a customer. Your business may not have enough working capital to fulfill the order which will force you to turn down the opportunity. But you don’t have to do that because some asset based lending companies can help.

What they can do is provide you with extra capital based on the value of the purchase order. You need to demonstrate that the purchase order offers a wide margin of profit, so that the lending company can take its share without hurting your business. You also have to prove that you have the means to fulfill the terms of the purchase order.

Usually, you’ll be provided with a line of credit so that you can pay your suppliers in order to fulfill the purchase order. Your progress towards completing the project will be monitored closely.


Once you have succeeded in fulfilling the order, the next step comes in. Usually, your customer is another business, and you allow it to pay you in full in 30 or even 60 days. Since you’re obviously in need of working capital immediately, that wait may not be good for your business. So again the lender steps in and helps.

They advance you the money based on the value of the payment coming to you. You get an advance that may be worth about 70 to 80 percent of the value of the contract. You can then use that money to cover essential expenses, or even to fulfill other purchase orders so you won’t need the help of the lending company again.

When your client pays in full within the agreed upon time period, you can then get the rest of the money. This is after the lending company gets the money they advanced to you.


The benefit of this entire process is twofold. First, you get the money to fulfill your purchase order. Without it, you don’t get to benefit from the business opportunity. You may also tarnish your reputation because you don’t have the capability to fulfill orders.

The other benefit is that you get your payment in advance. This allows you to take advantage of other business opportunities that will come your way. You don’t have to wait to get your own money anymore, and you can use it to make your operations more efficient.

With purchase order factoring, you get your profits, your lender gets their fees, and your customer gets their order. Everybody wins.

Tips for Boosting Customer Relations Which Can Maximize the Benefits of Small Business Factoring

When you’re involved with small business factoring, your relationships with your customers invariably comes into play. When you factor receivables, you get an advance on the money owed to you by your customers. Your customers then pay your factor on the due date and then you get the rest of your money (minus the fee charged by the factor) when your customers pay in full.

The fee and the advance are all determined by the creditworthiness of your customers. You pay a fine when your customers pay late, and you have to pay back the advance when they don’t pay you back at all.

So it’s very important that you have a good working relationship with your customers. Here are some tips about customer relations so you can maximize the benefits you get from factoring.

  • When you have new customers, set credit limits for them. A new customer is usually an unknown entity, and so you have no idea of how (or if) they pay their bills. You need to set a credit limit, so you can monitor their payment habits without risking too much.

Your customer should know about the credit limit, and they should know what steps they need to take in order to get better credit terms. Perhaps when they’ve paid in full and on time for a given time period, you can increase their limit.

  • Always set clear conditions and terms in your contracts. You must have a proper written contract with your customers, whether they’re old or new. If you’ve been used to verbal agreements with your customers, that has to stop if you expect to factor receivables.

Everything should be specified, every word defined clearly, and every figure clarified. There should be nothing unclear about the contract, and nothing should be open to interpretation. That keeps the misunderstandings and confusion to a minimum. And if the terms and conditions change, a new contract must be drawn and signed by both parties.

The amount owed to you must be specified. And the due date must also be very clear as well.

  • Try to forge a secure personal relationship with your customers. Building a strong personal relationship with your customers doesn’t just get you more sales. It also ensures that the companies you sell to pay the amount they owe in the time specified in the contract.

A contract may not be enough to deter your customers from paying late. But if you have a personal connection with them, they may be less inclined to destroy or damage that trust.

Customer relationships are essential for your business. And it becomes even more important when you’re engaged in small business factoring. By having a strong relationship with your customers, you can also make sure that your relationship with your factor is smooth as well.

Finance for a Business: Line of Credit vs. Factoring

Quite a few people think that when someone needs finance for a business, he should get a bank loan. The business owner gets a lump sum of money, and then after a specified period of time they repay the amount with interest. But today, there are already quite a few options for business to business finance.

A business, for example, may have a line of credit available for them. Or perhaps they can also enter a factoring deal with asset based lending companies. So which one is better for a small business?

What is a Line of Credit?

When a business has a line of credit, then the owner may take out an amount of money depending on how much they need at any given moment. The line of credit has a maximum amount, and they can’t borrow money more than the limit. When they repay the money they borrow, they then increase their credit line.

Using a credit card is very much like a using a line of credit. If you have a maximum limit of $10,000 on a credit card, then you can only borrow up to that amount before you start paying off what you owe. Meanwhile, you also have to pay interest.

What is Factoring?

Factoring is a type of financing without technically getting a loan. Instead, you give your accounts receivable to a factoring company, and in return you get an advance on the value of the money instead of waiting for it. So if an invoice is worth $10,000 and the factor agrees to advance 80%, you get your $8,000 right away instead of waiting for 30 or 60 days. When your customer pays up in full at last, the remainder of the money is passed on to you, once the factor has taken off its fees.

Which Is Better?

If you can get a line of credit, it may seem like this is the better option. But the operative word here is “if”. Getting a line of credit from a lender or a bank is not as easy compared to dealing with a factoring company.

First of all, the factoring company doesn’t really care about your credit rating. They mostly care only about the credit rating of your customers. If your customers have stellar credit, then factoring approval is almost automatic.

Using a credit card or a line of credit may also pose risks for your company, because you can’t really be sure that you’ll be able to pay back the loan with the interest on time. That’s not really so much of a risk with factoring, because you’ve already made the sale with your customer. You already have the money to pay the advance, except that you need to wait until the due date of the invoice.

When it comes to finance for a business, you may find that factoring offers the least amount of risk for your business. When you have excellent customers, you have little risk of getting your application for financing rejected, and you have little risk that your factor won’t get back the money they advanced to you.

Bonus Benefits from AR Factoring Companies

AR factoring companies can advance you up to 80% of the value owed to you by your customers. You can use this money to take care of all your urgent financial needs, from covering the rent and utilities, buying supplies to fulfill purchase orders, and even to meet payroll.

But depending on your agreement with your factor, this crucial advance may not be the only benefit you get from them. In fact, the popularity of factoring stems from the fact that you also get “bonuses” aside from receiving your much needed working capital.

Here are some of the benefits you may receive:

  • You will know the creditworthiness of your customers. When you have your invoices factored, your factor doesn’t really care a whole lot about your own credit rating. This is why so many small businesses turn to factoring in the first place.

Instead, the factor investigates the creditworthiness of your customers, where the repayment of the cash advance will come from. And you know the results of those CIs. You’ll learn which of your customers have a bad habit of paying late or which among them may end up not paying at all. Even if your customer has been paying you in full and on time for a year, if your customer actually has a bad history paying other companies then it’s likely that they will not pay you too.

Your factor can even investigate your new customers. This enables you to refrain from offering them credit terms when you discover that they don’t have an excellent history of paying what they owe.

  • You get your accounts receivable in order. Your factor (especially the best factoring companies) can do this for you, so that everything is organized properly. Each of your customers will have their own file, with their invoices and payment history in your accounting system. Each file may contain all the correspondence. Invoices are tracked to see which ones are due, which ones are outstanding, and how much is owed to you.

Your factor can do these things as part of the service they offer. They have a vested interest in the state of your accounting, since after all they want assurances that they’re getting back the money they advanced to you.

  • Your factoring company can take care of the collection. Collecting payments can be the most difficult part of a business. It may be off-putting to send reminders about due dates, especially when the customer is late. Doing this politely and professionally needs a delicate balance of courtesy and firmness.

With the best factoring companies, this task is no longer your responsibility. The factor takes care of it, and they’re the ones who will send the reminders. The best factors have enough experience in this matter, and they know how to do it in a way that will ensure you get paid without offending your clients.

Just remember, AR factoring companies are not magicians so don’t expect them to make things better for you all at once. But they can help a lot, and if you use their help wisely you may find that things will finally be looking up for your business.

What Are the Risks for the Factoring Business?

In the factoring business, factoring companies advances you a portion of your invoices. You don’t have to wait 30-60 days to get your funds, and so you can use it for emergency expenditures which can help keep your business stay afloat. But for this service, the factor will charge you a certain fee, just like a bank would charge interest for a loan.

In all honesty, your factor takes some risks when they offer you the advance money. This is why it’s justified when they charge you higher fees than what banks charge for loans. It’s not only that offer a faster application and setup process. It’s also to compensate them for the risk they are taking, or for the actions they take to minimize these risks.

Here are a few of the risks of factoring companies:

  • The invoice may not be real. These things happen. A business may have some invoices factored and so they receive 80% of the value of the invoices in advance. But perhaps no sale was made to that company, and the invoices are fake.

It’s for that reason the factor has to take steps to verify the authenticity of the invoices. The factor may have to confirm with the customer that your business did sell the volume of goods at the price specified in the invoice. They’ll also confirm when the invoice is due.

  • Are your customers creditworthy? Even if the invoices are authentic, the paying habits of your customers must also be investigated. They should have a good record of paying their debts in full and on time.

When your customers have a habit of not paying in full or on time, they represent a risk not just for you but for the factors as well. The factor may charge a higher fee for advancing you the money, or they may even refuse to advance you the money altogether.

Of course, your best option here is to not offer credit to these customers in the first place. But if you do, you may have to wait when they pay in full, or if they pay at all.

  • Do you have very few customers? The stability of your company matters to the factor, and that means they want you to have a large customer base to rely on. If you only have one or two customers, then your company’s future is in jeopardy. Your business can fail if even a single customer goes under or if they stop doing business with you.

There are several other risks, such as your own company’s credit history. It’s for all these reasons that the factoring business charges its fees.

Factor Receivables and Other Ways to Grow Your Business

Growing a business can be very challenging. In today’s environment, business can be slow and customers often demand credit. Your customers may need 30 days or maybe even 60 days to pay up in full. But herein lies the problem: you need the money now. Fortunately for you, you can opt to factor receivables so you can get a large chunk of the payment in advance.

But you can’t simply rely on factoring companies to help you. Even the best factoring companies can only do so much. They can give you more time to focus on growing your business by taking care of your accounts receivable and your collection, but you still need to elevate your company above the rest of your competition.

So aside from factoring, here are some ways which may help your business thrive:

  • Innovate. One way to be stand out from your competitors is to actually be different. Be innovative and do things differently. Offer new products and services, or at least new variations of popular goods and services. You can’t just do what other businesses are doing. If you own a janitorial service, for example, you may offer cleanings services that your competitors don’t offer.
  • Focus your efforts in one specific area. Take a good long look at the state of your company, and then identify which area really needs improvement. By focusing your energy on this area, you give yourself a better chance of improving it than if you try to improve everything at once. That kind of scattered approach may lead to lots of plans that don’t come to fruition because you weren’t able to concentrate on them properly.
  • Minimize and eliminate unnecessary expenses. Your business may be in trouble because your expenditures are getting out of control. You can reduce these costs by first tracking your expenses accurately. Then identify which expenses aren’t absolutely necessary so that you can put your money to better use.

You can track how much you’re spending on research, payroll, equipment, supplies, and advertising, and see whether each area needs an increase or reduction in budget.

  • Improve your online advertising. With so many people looking up information through Google and social media, it only makes sense that you establish your brand’s presence online. First you need a website, which you can use as an advertising platform. Here you can include all the information about the products and services you offer.

Then you can also engage in social media. You should use blogs, articles, videos, and email to reach your potential customers. By engaging you’re your customers, you will likely get more sales which in turn will help your business grow.

There’s no doubt that you can help your business grow when you factor receivables. But that’s just part of a bigger strategy. You need to be different, you need to be focused, and you have to improve your online marketing methods too.

Signs Factoring Accounts Receivable Can Help Your Business

Can factoring accounts receivables help grow your business?

That’s a very good question. Most small businesses invariably need more money than what their owners have in reserve. They need to pay their staff, buy supplies, get tools and equipment, cover rent and utilities, and spend money on marketing and advertising.

If this situation applies to your own business, perhaps you’re thinking that a bank loan is in order, or you may even be contemplating using your own credit card to fund your business operations.

But you are not limited to these options. You can also consider factoring receivable. Here are some signs indicating that factoring may be an ideal solution for your needs:

  1. You don’t want to go into more debt. There are many reasons why you don’t want your business to incur any more debt than it already has. Perhaps you now owe a ton of money to the bank or to your friends and family. Adding more debt on top of those obligations may be more than what you can handle.

But with factoring, you don’t have to take out a loan at all. You get an advance of the money owed to you by your customers, and that’s a different thing altogether.

  1. You can’t get a loan. Maybe you already applied for a loan and your application got rejected. There are many possible reasons for this. Perhaps your company is new, and the bank is not convinced you’d be able to pay back their money. Or you have bad credit, which makes you a poor candidate for a loan.

For whatever reason, factoring may be a more viable alternative, since it’s much easier to get. Most factoring companies don’t really care about your credit.

  1. Your give credit terms to your customers. It can be very frustrating when you can’t have the money needed for your business expenditures, because your customers have not paid you in full. Perhaps your agreement with your customers allow them 30 to 60 days to pay for their purchases, in which case you’ll have to wait a long time before you get your money.

If you can’t wait, then factoring becomes a suitable solution. The point of factoring is to get you that money in advance, so that you don’t have to wait at all.

  1. Your customers have good credit and payment histories. This is the most important consideration for factors. If your customers have a very credit history then you’re likely to get your factoring application approved. Also, you may only have to pay a smaller fee than if your customers have spotty payment records.

If any of these apply to your business, then it’s probably time to consider factoring accounts receivables to get the working capital you need. You’re more likely to get financing, and you can use that money to help your business grow.