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.
In as much as bank loans have been used for such needs for some businesses, they are generally never the only solution that a business has to turn to for their need for alternative funding for their operations at such times. Think of invoice factoring as a solution that may serve your needs right at such times. When we talk of invoice factoring, this is generally the habit of selling the unpaid invoices you have as a business to a third party, a factor, who will then pay you a percentage of the value there is on the invoices sold to them. After they have bought these unpaid invoices from you, they will then go ahead and collect the amounts due 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. As a matter of fact, when it comes to factoring, it is to be noted that this will often take any of these two paths; recourse and the non-recourse. For recourse factoring, this is where the customer assumes the risk for and as well guarantees the invoices such that in the event that a client fails to honor their invoice, then as the customer you will have to buy back the invoices that have not been paid for. 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. Added to this, with the conditions as seen in it, non-recourse factoring happens to be rather costly.