Does not increase debt
When you choose Factoring, in the Non-Recource type, the financing your company receives does not increase debt. Since the one who has to pay the invoice is not your company but the Buyer.
There are several types of modalities and characteristics in a Factoring operation. Such as, Recourse or Non-Recourse, Notified and Confidential, Domestic and Export, among others. There is no type of Factoring that’s better than the other because it all depends on the characteristics of your business.
In one of these modalities, Non-Recourse Factoring , there is a credit risk coverage associated with Factoring. This association can occur in two variants. At first, because your company already has a Credit Insurance Policy. Second, because the Factoring or Credit Management company has a Credit Insurance Policy that it uses to insure the amounts that are funded.
Due to the existence of such credit risk coverage, if Buyer fails to pay (and Policy requirements are met), the Purchaser will be substituted by the Insurer with regards to who pays the invoice. For this reason, the modality is Non-Recourse, because in case of non-payment by Buyer, there is no “Appeal” over the Supplier.
As there is no recourse on the Supplier, the advance invoice amounts are not reported to the Central Bank as a debt of the Supplier company. The Supplier company, in Non-Resource Factoring, thus gains access to more financing without increasing its debt at the Credit Liability Center (Portuguese Entity used as example).
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It is a common mistake to compare "apples with oranges". Regarding the cost of Factoring this is frequent. Factoring includes the collection service of your invoices and may also include credit risk coverage in the event of late payment or non-payment by Buyer.
Find out more about Factoring Upsides/Advantages
Savings by volume discount and advanced payments
Improved Balance Sheet
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