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IFG provides debtor factoring service to small businesses for almost 40 years. Please give us a call and we will address your immediate cashflow needs.

Debtor Factoring

Probably the most misunderstood component of debtor factoring is the language concerning recourse. It is important to understand the practical difference between recourse and non recourse debtor factoring.

The underlying concept of factoring is pretty straight forward. Company 1 delivers goods or services to Company 2 and subsequently issues an invoice to Company 2 for these goods or services. The debtor factoring company then buys this debt (invoice) from Company 1 at a discounted rate and immediately deposit these funds (the discounted amount) in Company 1’s bank account. 

In time, Company 2 pays the factoring company the full amount of the debt (face value of the invoice). Company 1 is happy because it got paid immediately (by the debtor factoring company), Company 2 is happy because it received its goods or services. The factoring company is happy because it made money on the transaction (the difference between the discounted rate it paid Company 1, and the full invoice amount it was paid by Company 2.)  In a perfect world that would be the end of things.

In the real world things don’t always work this smoothly.   On those occasions when Company 2 does not pay the factoring company in a timely fashion, the concept of recourse and non recourse kicks in. The most common mistake people make with debtor factoring is in understanding what recourse and non recourse actually mean. 

Factoring with recourse is the clearer of the two in that it means what it says: if Company 2 does not pay the factor in a timely fashion (usually within 90 days), then recourse kicks in and Company 1 owes the factoring company the full amount of the invoice.  Where most people get confused is thinking that factoring without recourse means that if Company 2 fails to pay the factoring company, then Company 1 is not liable. This is not the case. What factoring without recourse means is that if, and only if, Company 2 cannot pay the factor because they are insolvent, then Company 1 is off the hook. 
An insolvent company is one that cannot pay its debts (basically the company is bankrupt, whether or not they’ve actually filed for bankruptcy.)  Companies that are just slow payers, but not insolvent, are not covered by non recourse language in factoring agreements and Company 1 is still obligated to paying the factor the full amount of the invoice.

 If you have other questions about accounts receivable factoring, or want to get started with factoring, please click here  and fill out the inquiry form—an IFG Network representative will get in touch with you shortly.  We look forward to hearing from you.

Benefits of Spot Factoring Include:

  • Fast access to cash – first time applicants can receive cash in 24-48 hours; previously approved clients can receive cash in less than 6 hours.
  • Flexible – no minimums or maximums;
    no long-term contracts or obligations;
    no need to finance your entire receivables portfolio...use us when you need us.
  • Fee free – no upfront application fees, no due diligence fees, no credit line fees (spot factoring is not a loan).
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Testimonials:

“Services provided by IGF allowed us to capitalize on significant growth opportunities over a short period of time; tripling our workforce and increasing our revenue 10 fold”

Carol Craig
President,
Craig Technologies