What your factoring company may not be telling you about your Non-Recourse invoice factoring credit facility

It is a popular misconception, promoted by those in the know, that non-recourse financing transactions common to the Invoice Factoring and Asset Based lending industries are a virtual magic potion for credit concerns. Unsuspecting entrepreneurs are lead to believe that they will not be liable for any losses incurred should their debtors fail to remit payment to the lender under a non-recourse financing arrangement or factoring line. Often they are convinced to pay a bit more for this non-recourse factoring service over a more typical recourse financing transaction.

After all, for a growing business the offer of freedom from worry about the payments of their customers and the ability instead to focus on the sales, health and longevity of the company could be likened to the discovery of Business’s Holy Grail. What business owner wouldn’t want this service?

The sad fact though is that this is not the case. While a Factoring Company’s underwriter may tout the benefits of the service, the devil is truly in the details. As it turns out, non-recourse factoring lines only cover very specific instances of non-payment. Most often non-recourse deals coverage is limited to actual bankruptcy filings by the debtor companies. What this means is that the lender is really only at risk of liability for the lack of payment if they’ve allowed a company on the verge of bankruptcy to run up a large balance on their client’s books. Not a smart move, and they know this.

Consequently it is in the Lender’s best interests to be very conservative when establishing the credit limits for their Client’s debtor companies. In the end a service that was sold as a “small price to pay” for peace of mind ends up being of little or no real benefit and often actually impedes the Client’s growth due to the overly conservative credit constraints imposed by the lender in an effort to better their interests by mitigating their credit exposure.

The factoring industry has gotten a bad rap in years past for high rates and less than truthful marketing efforts. Don’t be discouraged if you’ve been approached with a non-recourse deal, weigh your options carefully. Find out everything you can about your potential financial partner. Most importantly ask for references. There are factoring companies out there who will be upfront and honest in their description of services and the rates you’ll be charged. If you think you’re being taken for a ride you’re best advice would be to take a step back and call a few other factoring companies for a comparison. If you’re already invoice factoring don’t forget to price shop. Accounts Receivable Finance is a very competitive industry and you’d be surprised how far your lender may go to keep you.

DISCLAIMER: All information, content, and data in this article are sole opinions and/or findings of the individual user or organization that registered and submitted this article at Isnare.com without any fee. The article is strictly for educational or entertainment purposes only and should not be used in any way, implemented or applied without consultation from a professional. We at Isnare.com do not, in anyway, contribute or include our own findings, facts and opinions in any articles presented in this site. Publishing this article does not constitute Isnare.com's support or sponsorship for this article. Isnare.com is an article publishing service. Please read our Terms of Service for more information.

About Michael Pickels - Michael Pickels is the COO for Business to Business Capital Corp – America’s Friendliest Factor. Please visit BTB Capital Corp at http://www.btbcapital.com to receive a no cost, no obligation proposal for factoring or contact us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .