What differentiates Factoring in relation to Recourse or Non-Recourse is what happens when the Buyer does not pay the Invoice that was assigned to the Funder (Bank or Factoring Operator).
If Factoring is Non-Recourse, this means that there is no Recourse onto the Supplier, that is, if the Factoring Transaction has been set to be Non-Resource, in case of non-payment by the Buyer, the Supplier does not have to return the amounts that were advanced.
Non-Recourse Factoring displays numerous advantages, namely:
The Checking Account with Buyer, in the amount advanced by the Lender, may be counted as if Buyer had already paid this amount. For in case of non-payment by the Buyer, the Lender will not request the return of these amounts.
Since the Checking Account with its Buyers will decrease in value, by the amount advanced by the Funder in Non-Recourse, its Average Receipt Time will also decrease. The decrease in the Average Receipt Time is relevant in the financial analysis of a Company. That said, improving this indicator is something that every business should value.
- With the decrease in the current account Total with the buyers, due to the Non-Recourse factoring, everything else unchanged, the total value of your company balance sheet will decrease. Since the Ammount unpaid by clients too decreases. If your balance sheet decreases it’s value and your equity remains, your financial autonomy will increase. In addition, this metric is one of the most relevant in a company’s financial analysis. With the increase in Financial Autonomy, your Company may also be eligible for financial soundness awards and also eligible for government grants.
- In accounting terms, amounts received in advance of invoices are not considered bank debt. Well, who owes the money to the lender is not your company but the buyer, since ultimately the Buyer has to pay the Invoice.
- The advances you receive from the funder are not bank debt. Therefore, these amounts are not communicated to the Central Bank and do not add to your bank debt. Other Banks, when consulting your company’s debt with the Central Bank will not see the amounts your Company receives in Non-Recourse Factoring.
- Non-Recourse Factoring will not affect the Central Bank Accountability Center. Therefore, your company retains the ability to obtain financing through other financial sources / services.
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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 claims and may also include coverage in the event of late payment or non-payment by Buyer.
Since the funding you receive is linked to the invoices you've issued, the more you sell the more funding you will receive. However, most banks set a funding ceiling for your Company. While under factoring as you increases your sales, the financing you receive too increases.
Know what other types of Factoring exist.
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