ADHD is getting the upper hand of me today with too many tantalizing tidbits coming my way to pick and choose. Therefore, you’re getting a brain dump in a series of three posts. Do with it as you will. Heck, it may be a new series, making the delightfulest shortestest posts. Delightfulest shortestest is of course inspired by Helen who shames me for profligate grammar usage. Being generally quarrelsome, I also enjoy inciting red underlines, marking recalcitrant verbiage. So there.
First, the boring part. Recourse vs Non-recourse factoring after one of you shared the happy news of getting a factor. Typically, I think that’s bad news. In this case, it wasn’t. She’s getting a rate of about 2.5% as compared to the traditional industry factoring rate of 15%-20% of invoice. 2.5% is a rate that is comparable to credit card merchant services fees. Who would have guessed? Turns out she’s getting non-recourse factoring, an option I’d never heard of. The explanation made clear, I understand that traditional factors use recourse financing, particularly for smaller customers (hit those links if you have no idea what factoring is).
Basically, non-recourse factoring means the vendor (you) are not covered if the buyer doesn’t pay. You may think that doesn’t sound like much of a deal but it’s ideal for many. If you have a stable of good customers, you may not need the guarantees implied with recourse factoring. She certainly doesn’t. Moreover, her factor -unlike apparel industry factors- is not requiring her to hand over all of her receivables, what a deal! That said, she’s thinking about doing it; there’s a lot of value added because a factor picks up all of your invoice servicing reducing your work load. I hate invoicing and don’t do it nearly often enough.
Additionally, a non-recourse factor will provide services such as checking credit etc. I don’t know if they will suggest or require you to deny purchases to a questionable account. I know traditional factors won’t permit it. Speaking of such, the DE who called me with all of this said she got a referral to three factoring services. One of whom she suspects is a one man operation with a bat in his trunk. She supposes he leans on customers the hard way. I’d imagine he wouldn’t do much in the area of credit checking or denying credit based on poor bets but he’d be gung-ho at collections. No doubt. See google for more info on recourse and non-recourse factoring.